The South African Reserve Bank kept its interest rate unchanged at 5%, along with a warning that the local currency will remain unstable while investors guess at the Federal Reserve’s plans for withdrawing economic stimulus.
These interest rates have again remained steady following the three day meeting of the Reserve Bank’s Monetary Policy Committee (MPC).
Gill Marcus - the SA Reserve Bank governor said on Thursday that the MPC once again had kept its key repurchase rate unchanged at 5%. Due to this the prime lending rate also remained at 8.5%. “ Increasing inflationary pressures and null growth driven the bank towards keeping its key interest rate unchanged.” This rate held by the bank was at that four decade low since July 2012.
The economic growth this year according to the bank’s forecast was found 2%, which is too low to create a sufficient amount of jobs in the country where the official unemployment rate is 25.6%.
Marcus further added that the bank was willing to increase the rates if the inflationary pressures mounted although with the weak growth.
Inflation is expected to continue at an average annual rate of 5.9% this year from 5.8% in the previous year. It was found 6.4% in August.
Including Turkey and Indonesia other South African marketing peers have already raised interest rates to discourage investors from wasting their bonds and currencies.
Many emerging and new markets have gone down to a remarkable low level against the U.S. dollar on expectation the Fed would soon call back its $85 billion a month bond buying program to support the U.S. economy.
In August the Rand went down by more than 20% against the U.S. dollar, after the Fed said on late Wednesday that it will maintain the required level of its bond buying for now.
This situation will continue until the Fed will not take the matter seriously- Marcus said.
She also said “It is a good news if the U.S. economy is recovering and growing. In such situations if there are any negative impacts while the adjustments, we very well understand how difficult is such kind of situation.”
