Gill Marcus
The following are some of the key highlights from the Governor of the Reserve Bank Ms Gill Marcus speech on the interest rate announcement:

• Rand impacting on SARB’s inflation forecast. 2014 forecast now above 6%. Domestic demand not driving inflation.

• 2015 SARB inflation forecast at 5.9%

• SARB concerned about the outlook of growth regarding emerging market economies and also patchy in Europe.

• Monetary policy differences between different countries helping to generate volatility in emerging markets

• Deficit countries like Brazil, Turkey and India have been raising rates.

• Rand inflationary pass through has been less than expected.

• Rand affected by deteriorating in the terms of trade, strikes

• Wide current account deficit is exacerbated by strikes in mining sector

• Growth is expected to be 2.8% in 2014, revised down from previous

• Manufacturing down but construction stronger. However construction outlook is mixed. Job losses in mining & construction worrying

• Private sector loans & advances to private sector are moderate.

• Small decline in household debt to disposable income

• Food inflation have been the main driver of downside surprises in recent inflation data

• Low food inflation unlikely to persist. Acceleration expected.

• Main focus by the MPC: low growth but higher inflation with upside risks.

• Also concern over capital outflows.

• Rate hike 50 basis points, repo rate at 5.5% taking the prime lending rate to 9%

• 50 basis points – against consensus but sensible and should not surprise.

• Hike not intended to support the rand.

• Main purpose of hike is to anchor inflation and monetary policy still regarded as accommodative. This means more hikes if rand weakens more

• The hike more substantive than symbolic. Unstated implications is to reinforce confidence, as it was the right even if unpopular decision

• The South African Reserve Bank has to now grapple with stagflation. Inflation is ultimately an obstacle to growth. Negative short term; positive long term

• Overall impression: a professional SARB governor. Prepared to take the difficult decisions despite election. Reinforces SARB independence

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