RESERVE Bank governor Tito Mboweni, who retires next month, has secured his pension by leaving the repo rate unchanged.

Yesterday's announcement came as no surprise to two-thirds of the economists polled by Business Times this week, who expected the repo rate to remain at 7percent.

The bank reported some positive indications that the domestic economy was experiencing a reduced rate of contraction.

Mining production has shown an increase, the Kagiso-BER Purchasing Manager's Index has leapt from 39,3 in August to 48 index points in September.

The economy is still weak, with a 13,4percent decrease in new motor vehicle sales, a 4,0percent decline in the year-on-year rate of producer prices, a 15percent decrease in the physical volume of manufacturing output in August, and a 7percent drop in retail sales.

"The picture presented in the current data is reassuring and inflation is moderating, but there are threats on the horizon," said economist Tony Twine.

He was referring to cost pressures in the economic system, including higher labour costs, the increased price of oil, the strong Rand and the electricity hikes proposed by Eskom.

North Sea Brent crude oil increased to $76 a barrel, above its average of $70 a barrel, and the unit cost of labour is above the inflation rate.

The greatest concern is the proposed 45percent electricity tariff hike that the National Energy Regulator of SA is to decide on in February next year.

The Bank has allowed for a 25percent electricity increase in its inflation forecast and expects the economy to perform within the target band by 2010.

Brait economist Collen Garrow believes that the SARB has been "conservative on the implications electricity tariffs will have".

Concerns have been raised that if the electricity prices were to substantially increase next year incoming Reserve Bank governor Gill Marcus would have no choice but to increase interest rates.