repo rate steady as 'economy recovers'

THE Reserve Bank left its repo rate unchanged at 6,5percent yesterday, as expected, on signs that the economy is recovering and after a series of cuts that have taken interest rates to three-decade lows.

THE Reserve Bank left its repo rate unchanged at 6,5percent yesterday, as expected, on signs that the economy is recovering and after a series of cuts that have taken interest rates to three-decade lows.

The central bank surprised the market with a 50 basis point cut in March, adding to 500 basis points of reductions between December 2008 and August 2009. This week's decision to leave the repo rate - the rate at which it lends to retail banks - steady was largely expected after governor Gill Marcus last month signalled a no-change decision when she said there was limited scope for further monetary easing and that rates would be stable for "some time".

Twenty-two of 25 economists polled by Reuters last week expected the repo rate to be left steady.

"The (monetary) committee members were unanimous in their views. I don't think there was any discussion about cutting (rates) at this point in time," Marcus said.

Inflation is largely under control with the targeted headline consumer gauge slowing to a near four-year low of 5,1percent in March, while the economy is recovering, albeit gradually.

The Reserve Bank said the inflation outlook had improved although there were risks mainly from administered prices. High wage settlements not matched by productivity increases could also pose a risk to the outlook.

Marcus said the growth outlook was underpinned by the manufacturing sector. Manufacturing output rose by 6,1percent year-on-year in March, pointing to another positive GDP figure in the first quarter after a 3,2percent increase in the last quarter of 2009.

However, consumer demand remains weak as consumers face high debt levels and with about a million jobs lost since the beginning of last year.

The central bank said although there was some evidence of an improvement in household consumption, higher unemployment would constrain expenditure. - Reuters

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