Tito keeps eye on consumers

Pretoria - South Africa's central bank held its repo rate steady at 9.0% on Thursday, in line with expectations, but warned that it would keep a close eye on the country's rampant consumer spending.

Reserve Bank governor Tito Mboweni said the bank's forecasts suggested the targeted CPIX inflation rate was no longer expected to breach the 3% to 6% target range, peaking at 5.6%year-on-year in the second quarter of the year.

It had been forecast to pierce the range in April.

"Since the meeting of the MPC (Monetary Policy Committee) in 2006 the outlook for inflation has on balance improved," Reserve Bank Governor Tito Mboweni told a news conference.

The rand initially weakened slightly after the announcement with some traders having priced in the possibility of a 50 basis point increase, while yields on the benchmark R157 bond due 2015 fell three basis points to 7.65%.

The currency was trading at R7.1725/US$ at 15:40 compared with R7.1650 before the decision.

The central bank raised rates four consecutive times last year, citing rising inflationary pressure and high consumer spending.

The targeted CPIX inflation measure has remained within the bank's 3% to 6% band for more than three years but had been forecast to test the upper end of the range.

But the measure has surprised on the downside in recent months, stalling at around 5% year-on-year since August.

Consumer spending has remained a concern with credit growth still near record levels at more than 25% year-on-year in December.

Mboweni said consumer spending continued to grow "robustly" with only tentative signs of abating, and warned that the bank was studying proposals to increase the reserve requirements of commercial banks in a bid to curb still high credit growth.

Ten of 16 economists polled by Reuters last week had predicted the Reserve Bank would keep its repo rate steady at 9.0%, with six predicting a 50 basis point hike.

-Reuters