Interest rate unchanged

The prime interest rate will remain steady after the SA Reserve Bank opted on Thursday not to change the repo rate.

Making the announcement in Pretoria, governor Gill Marcus cited high food inflation, a weaker rand and low domestic output as some of the considerations made by the Monetary Policy Committee in arriving at the decision.

"Widespread labour market instability and work stoppages have reduced output and export volumes, with the potential for employment losses," she said.

Risks to the inflation outlook had been increased by a further depreciation of the rand exchange rate and the impact of the re-weighting and re-basing of the CPI basket by Statistics SA, Marcus said.

The announcement meant the repo rate would be unchanged at five percent a year.

This is the rate at which commercial banks can borrow money from the central bank. It is used to calculate the prime rate, which banks give their best customers.

Inflation was expected to average at 5.6 percent in the final quarter of 2012, and at 5.6 percent for the year, she said.

It was expected to average at 5.5 per cent in 2013, and five percent in 2014.

Marcus said the global economic outlook had deteriorated and there was a bleak view on unresolved sovereign debt crisis.

"For some time, the exchange rate of the rand has been determined primarily by external developments... More recently, domestic factors appear to have become dominant determinants of the exchange rate."

These factors included the increased risk posed to the economic outlook by labour market developments in the mining and agricultural sectors in particular.

Since the previous meeting of the MPC, the rand had depreciated by about 6.7 percent against the US dollar, 5.8 percent against the Euro, and by 5.8 percent on a trade-weighted basis.

Isaac Matshego, economist at Nedbank, said the announcement was expected due to the current domestic economy.

"The outlook for the domestic economy has deteriorated since the September MPC meeting, but the committee was compelled by concerns about inflation to keep interest rates unchanged," he said.

He said the weaker rand posed a risk to the inflation outlook, while recent high wage settlements could also add to the inflation spiral.

On Wednesday, StatsSA announced that Consumer Price Inflation accelerated to 5.6 percent in October, from 5.5 percent in September.

The increase was driven by hikes in food prices, non-alcoholic beverages and fuel.

"The conflict between weaker growth and rising inflation will most likely keep monetary policy neutral over an extended period.

"We believe interest rates will remain unchanged for an extended period, with a reversal in policy easing likely only late in 2013," said Matshego.