Sarb hikes repo rate

Cape Town - South African Reserve Bank (Sarb) governor Gill Marcus on Thursday announced a repo rate hike of 25 basis points, following a three-day meeting with the monetary policy committee (MPC).

"The MPC has decided to continue on its gradual normalisation path and raise the repurchase rate by 25 basis points to 5.75% per annum, effective from Friday 18 July," said Marcus.

The repurchase rate is the interest rate at which the Sarb lends money to commercial banks.

The last time Sarb adjusted the repurchase rate by less than 50 basis points was over a decade ago in October 2000.

Marcus said South Africa's growth outlook deteriorated and is compounded by labour unrest.

"We would like to reiterate that monetary policy should not be seen as the growth engine of the economy. The sources of the below par growth performance are largely outside the realms of monetary policy."

The Reserve Bank revised the GDP forecast to 1.7% compared to 2.1% previously. It also revised inflation forecasts to 6.3% in 2014.

Marcus said that the global economy is showing mixed signals. She said the US is expected to grow at 2% in 2014 from 3%, while the outlook for the eurozone has also deteriorated.

She said the outlook for emerging markets also remains subdued.

The MPC remains concerned about weak growth, widening output gap and the negative employment outlook, however Marcus urged the implementation of reforms in order to boost growth.

"Given that the key headwinds preventing a return to trend growth are structural, there is an urgent need to implement necessary structural reforms, as envisaged in the National Development Plan, in order to achieve higher and more inclusive growth."

The 25 basis point hike is the first since January, when the the repo rate was increased by 50 basis points to 5.5%. However, Marcus warned at the time that the country was in a rate hiking cycle.

Click here to see how the announcement unfolded.

 - Fin24

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