Rates stay but fuel prices likely to drop

The Reserve Bank left the interest rate unchanged yesterday, citing risks of higher inflation.

Since the Reserve Bank's monetary policy committee's last meeting in September, the rand has weakened against most major currencies. The currency was trading close to R9 against the dollar late yesterday afternoon.

Gill Marcus, the governor of the Reserve Bank, said that "risks to the inflation outlook have been increased by further depreciation of the rand exchange rate".

A weaker rand hits consumers when it flows through to increase fuel prices and South Africans have watched petrol prices reach a record high this year.

Consumer Price Index numbers released by Stats SA earlier this week, showed that inflation is approaching the upper end of the Reserve Bank's target band.

Inflation was 5.6% year-on-year last month, up from 5.5% in September. The bank targets a band of between 3% and 6%.

Marcus said the domestic growth outlook had deteriorated since the September meeting.

Production and export volumes have been hit by mining and transport sector strikes that have also had an impact on manufacturing.

The monetary policy statement noted that the perception that South Africa has entered a cycle of higher wage increases has contributed to a weakening of the rand that could fuel inflation.

Andrew Golding, CEO of the Pam Golding Property group, said yesterday the Reserve Bank's decision to leave the rate unchanged was expected.

Early indications are that consumers will get some relief next month at the fuel pump.

Statistics released by the Central Energy Fund point to an over-recovery so far this month in the price of both petrol and diesel.

If the numbers for the first 20 days of the month continue for the next week or so, the petrol price could drop on the first Wednesday of next month by 30c a litre.

The fund's statistics show that the price of diesel could be cut by 21c a litre.