The South African Reserve Bank (SARB) Governor, Lesetja Kganyago, announced today that repo rate will remain the same at 5,75%, which means that the prime lending rate remains 9,25%.
"The [Monetary Policy Committee] MPC has unanimously decided to keep the repurchase rate unchanged at 5,75% per annum," said Kganyago.
Kganyago cited various reasons as to why the repo rate will remain the same, one of them having to do with the lower oil prices. Adding to this, Kganyago believes that this decision is the best for all.
"Lower inflation is good for the working people, it is good for the poor, because those are the people who are not protected against the rising prices," said Kganyago.
Consumer Price Index
"The year-on-year inflation rate, as measured by the consumer price index (CPI) for all urban areas, maintained its recent downward trend and measured 5,8% and 5,3% in November and December respectively, down from its recent peak of 6,6% in May and June 2014," said Kganyago.
This trend reflected the moderation of food prices, and the lowering of oil prices. Food price inflation measured 7,4% in December, down from 7,7% in November, while petrol prices declined by 5,5%.
The decline in oil and agricultural crop prices have been favourable all round, showing a decline for certain goods.
"Headline producer price inflation for final manufactured goods was also favourably impacted by declining oil and agricultural crop prices, and measured 6,5% and 5,8% in November and December respectively compared with 6,9% and 6,7% in the preceding two months," said Kganyago.
Oil prices
The long term effects that the oil prices have on inflation, as well as costs of food and commodities is still to be seen.
"The longer term impact will be dependent on the persistence of these lower prices, which have been a reaction to global supply and demand factors as well as a change in the behaviour of key oil producers," said Kganyago.
However, lower oil prices are expected to remain the same for some time to come, according to the MPC.
"However, our forecast makes provision for a moderate increase over the next two years," said Kganyago.
"The electricity constraints do reduce potential GDP growth. Even though we are growing below long term potential doesn't support growth because there isn't the supply capacity."