The South African Reserve Bank's (SARB's) Monetary Policy Committee on Thursday decided to leave the repo rate unchanged at 12.0 percent.

The prime overdraft rate thereby remains at 15.5 percent and the current tightening cycle, which began in June 2006, at 500 basis points.

"Notwithstanding certain risks to inflation outcomes we feel the current stance is appropriate for now," said Governor Tito Mboweni.

He indicated, though, that this decision did not mean that the tightening cycle could be seen as over.

"Actions taken thus far are showing signs of having an impact, but we are not out of the woods yet, for example, if we assume the rand will appreciate and oil will come down we still inflation outcomes above six percent," noted Mboweni.

Picture is still worrying

"The picture is still worrying as our simulations only indicate we will be back to the target band in 2010 - it's far away," he added.

Mboweni said that while the oil price had declined $30 a barrel since the last meeting, but highlighted that it is still too early to tell if the lower oil price is a temporary phenomenon.

He pointed to recent geopolitical risk as a concern.

Mboweni pointed out that CPIX inflation is expected to peak in the third quarter of 2008 at an average 13 percent - it is currently 11.6 percent year-on-year.

It is, however, expected to decline in the first quarter of 2009 and then decline "gradually" to below upper end of the three percent to six percent target in the second quarter of 2010. CPIX is seen at an average 7.2 percent in 2009 and 5.9 percent in 2010.

"Certain assumption were made to take account of the reweighting and rebasing to take place in January 2009," he added.

A break in the stats series

"We did an exercise where we considered the new weights, but we will wait until January to have a very clear understanding," said Mboweni.

He added that it clearly meant a break in the stats series and that this would have to be considered.

"We did do some simulations on the likely consequences of changes. Our forecast shows the changes will be very marginal," he added.

Mboweni did say that the MPC had considered growth constraints and that the economy was showing signs of stress, for example in the housing sector.

However, this was not the only consideration, he added.

For example, he pointed out that the MPC also had to consider how wage increases related to unit labour costs – "it is moving up and this is of concern".

Food inflation declined

He noted that the wage settlements had been influenced by higher inflation outcomes.

However, on a more positive note he did say that agricultural food inflation at the producer level had declined to lower levels, indicating the possibility of some price relief in the future.

Added to this was that household consumption was declining.

In answer to a question, Mboweni also said that the second quarter current account deficit was likely to have "narrowed somewhat if you look at the trade account".

The consensus was for South Africa's repo rate to remain unchanged at 12 percent, according to a survey of 13 leading economists by I-Net Bridge.

Of the 13 respondents surveyed, a majority of ten felt the repo would remain unchanged, with three predicting a 50 basis points increase.

Most respondents also felt the tightening cycle would be over, but that if another increase happened, then August's increase would mark the end of the cycle.

I-Net Bridge