The South African Reserve Bank's (SARB's) Monetary Policy Committee (MPC) on Thursday decided to keep the repo rate unchanged at 7.0 percent. This is in line with consensus expectations in the marketplace.

SARB Governor Tito Mboweni, in his last repo announcement, said that risks to the inflation outlook have not changed markedly since the last meeting, but he acknowledged that forecasts had not factored in the request by Eskom for a trebling in prices. He said these changes would have a significant impact down the line. The strong rand, though, had helped improve the inflation outlook.

During the question session, Mboweni told a Sake24 reporter that the Economic Development ministry had reportedly denied they had called for a freeze of the rand. Sake24 earlier reported that Minister Ebrahim Patel was calling for this, which ruffled feathers in the marketplace.

"The existing policy is to pursue a floating exchange rate and no decision to the contrary has been taken," said Mboweni.

Eskom hike to impact on inflation

Gill Marcus will be taking up the cudgels at the Bank as Governor from November.

On Eskom, Mboweni said: "This is a major structural problem, even though we are sympathetic to the problems faced by Eskom. But the impact is going to be there on inflation, and yes we are concerned about it. There is not much we can do about it and have to live with it. We are not condemning Eskom at all."

Mboweni said that expectations of a return to the inflation target by the second quarter of 2010 remain promising and that this could even be sustainable. The current forecast expects inflation to stay in the range until the end of 2011. A slight improvement in 2010-11 has ensued mainly as a result of the changed assumption regarding the rand.

Mboweni says economic growth should improve in coming months but be below potential for some time.

"We may emerge from recession by the end of 2009, but the recovery is likely to be tentative," he said.

Oil not an immediate threat

He said the rand continues to provide downside pressure on inflation, excluding today's weaker movements.

"Oil does not pose an immediate threat to the inflation outlook," he added.

But he said the main risks to the inflation outlook emanate from cost-push pressures in the economy, like wages, although there appears to be some evidence nominal wage increases are moderating.

"The Eskom increases are seen as the main longer-term threat the inflation outlook," he said.

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