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Thursday, August 14, 2008

South Africa Central Bank Leaves Interest Rate Unchanged At 12%

South Africa's central bank left its benchmark interest rate unchanged following six increases since June last year which have significantly curbed consumer spending in what is Africa's largest economy. The repurchase rate will remain at 12 percent, Governor Tito Mboweni said in a televised speech from Pretoria today. Interest rates may have peaked as a month-long decline in oil prices and a rally in the rand, combined with the higher borrowing costs, have all begun to ease pressure on prices. Inflation, which climbed to a 10- year high of 11.6 percent in June, will slow `"significantly'' in the first quarter of 2009, coming back into the 3 percent to 6 percent target range by 2010, according to Mboweni.

The Reserve Bank has increased its borrowing costs by three percentage points since June last year, slowing consumer spending. Vehicle sales plunged an annual 20 percent in July, after dropping 21 percent in the previous month. Retail sales fell for a fourth consecutive month in June, declining 2.6 percent from a year ago, the statistics office said yesterday.

Mboweni added that the current account deficit, the broadest measure of trade in goods and services, probably narrowed in the second quarter, while economic growth rebounded from a six-year low in the first three months of the year. The current account gap reached a 26-year high of 9 percent of gross domestic product in the first quarter, while economic growth was an annualized 2.1 percent.

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