South African Central Bank Leaves Key Rate Unchanged

By Nasreen Seria and Vernon Wessels

Oct. 9 (Bloomberg) -- South Africa's central bank left its benchmark interest rate unchanged for a second consecutive meeting, even after inflation reached a record, as the global credit crisis threatened to undermine economic growth.

The repurchase rate will remain at 12 percent, Governor Tito Mboweni said in a televised speech from Pretoria today. The decision was forecast by all 19 economists surveyed by Bloomberg.

Inflation at 13.6 percent, more than double the target, stopped the Reserve Bank from following central banks in the U.S., Europe, Canada and Australia that cut rates this week to ease the impact of the worst financial crisis since the Great Depression. Consumers have already slashed spending on cars and furniture after six interest rate increases since June last year.

``Inflation is still a problem here,'' Jean-Francois Mercier, an economist at Citigroup Inc. in Johannesburg, said before today's decision. ``Inflation is going to slow, but the forecast is surrounded with more uncertainty than usual. The margin of maneuver for the Reserve Bank is constrained.''

Inflation, which has exceeded the 3 percent to 6 percent target range since April 2007, will probably average 6.9 percent in 2009 and drop into the target by the second quarter of 2010, Mboweni said.

The outlook on inflation ``has improved because of lower oil prices, but the exchange rate of the rand has emerged as a significant risk factor,'' Mboweni said. The Reserve Bank didn't discuss lowering interest rates today, he added.

Supporting the Rand

Keeping rates unchanged while central banks around the world ease borrowing costs may lend support to the rand, which has plunged 13 percent against the dollar since the last MPC meeting. The rand was at 8.9325 against the dollar as of 3:37 p.m. in Johannesburg from 9.0142 before Mboweni started speaking.

The central bank has raised its repurchase rate by 3 percentage points since June last year, slashing vehicle sales, which plunged an annual 18 percent in September after a 30 percent drop in the previous month, according to an industry body. Retail sales fell a record 4.6 percent in July from a year ago, the statistics office said on Sept. 23.

Inflation may ease after oil prices plunged 23 percent in New York since the last Monetary Policy Committee meeting on Aug. 14. Planned changes to the measurement of the consumer price index next year, when the weighting of food will be cut, may also help to lower the inflation rate.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net; Vernon Wessels in Johannesburg at vwessels@bloomberg.net