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The MPC decision to hold the repo rate at 6.5% is welcome news given its indication that projections for inflation and domestic economic growth are favourable. It also points to consistency with the Governor's recent signals to the market that the rate will remain on hold. This should provide a level of comfort to analysts that the Governor's commitments to greater transparency are credible.

The key message is that the inflation outlook has improved slightly since March and that, looking forward, inflation is expected to remain within the target range for some time. Increasing unemployment will constrain household consumption and thus neutralise inflationary pressure from demands for wage increases above the rate of inflation, without compensatory productivity increases.

The hold also indicates confidence that the moderate domestic economic growth path will continue on its current trajectory - as reflected in the bank's adjustment to its growth forecast to 2.7% in the current year and 3.6% in 2011.

The greatest risk factor remains the fragility of the global economic recovery, especially in light of the Greek debt crisis and its impact on the broader European economy, and its impact on the volatility of the rand. This further highlights the inappropriateness of calls to intervene in the currency markets to influence the exchange rate.

There will no doubt be some unhappiness over this decision; but the MPC must not sway to political demands for radical cuts that could result in a pro-cyclical, rather than the necessary counter-cyclical approach as is now being pursued.