Marcus keeps markets guessing on interest rate decision

Reserve Bank governor Gill Marcus kept markets guessing on the outcome of this month's monetary policy meeting, saying that no guidance was needed, as there was no view which had to be "engaged".

Her speech in Johannesburg yesterday made clear that the Bank was worried about the effects of a European slowdown on SA's economy, where manufacturing output is waning.

But she also said that loose monetary and fiscal policy, along with a weaker exchange rate, would fan inflation and not provide the solution to the challenges faced by SA's economy.

Marcus revealed the Bank's last forecast for growth this year, saying it would amount to about 3% -- a touch above its estimate at the monetary policy committee's (MPC) meeting in May.

"The question of policy guidance is where you see it’s necessary to say something because there’s a view out there that needs to be engaged. I don’t see that at this time so it’s not necessary," she said at a business breakfast today.

A couple of weeks ahead at the last MPC meeting in May, Marcus deliberately quashed speculation the Bank would cut interest rates again, saying there was "limited scope" for further easing.

Her remarks this time suggested to analysts that while a cut at this month's meeting was unlikely given that the global outlook was clouded by uncertainty, the chances of one later this year were very strong.

Standard Chartered's regional research head for Africa said that Marcus's comments made the chances of another interest rate cut much more likely, though not necessarily at this month's meeting.

"The market seems to be taking the view that there will be a cut, not at the very next meeting but further out," she told Business Day.

"But if there is a reason to cut in the futue why should it not apply today.... if you are going to provide a stimulus and it feeds through with a lag, then why wait?"

The Bank has reduced its key repo rate by 5,5 percentage points to 6,5% since December 2008, a new 30-year low.

Article by: MARIAM ISA -