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SA Reserve Bank Keeps Interest Prime Rate Unchanged At 7% - Repo Rate At 3.5%

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SA Reserve Bank Keeps Interest Prime Rate Unchanged At 7% - Repo Rate At 3.5%

The South African Reserve Bank's Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 3.5%.

In a statement on Thursday afternoon (20 May) Reserve Bank governor Lesetja Kganyago said that the decision was unanimous, given a 'balanced' economic outlook and inflation forecast.

Speaking on the wider economy, the governor said that the steady rate of vaccination in many countries has lifted projections for global economic growth and boosted confidence, significantly.

However, he said that vaccination rates have not been uniform, with many emerging and developing countries lagging behind.

"This uneven vaccination rollout will weigh heavily on some countries more than others and on economic activity in sectors that are more dependent on close contact, such as travel, tourism, hospitality and leisure," he said.

"Until vaccination is widespread and populations develop sufficient immunity to curb virus transmission, it is expected that waves of infection will continue."

Given this backdrop, the SARB's forecast for global growth in 2021 now sits at 6%. For South Africa, following an expansion of 6.3% in the fourth quarter of 2020, the bank's forecast for South Africa's first quarter growth stands at 2.7%, much stronger than the 0.2% contraction expected at the time of the March meeting.

The economy is expected to grow by 4.2% in 2021 (up from 3.8%), he said. "The stronger growth forecast for 2021 reflects better sectoral growth performances and a more robust terms of trade in the first quarter of this year."

Despite the more optimistic outlook, households remain under pressure, and getting back to pre-pandemic levels will take time, Kganyago said.

Headline consumer price inflation averaged 3.3% in 2020. The forecast for 2021 is slightly lower at 4.2% (down from 4.3%) and for 2022 and 2023 unchanged at 4.4% and 4.5%, respectively.

At a global level, a wide range of prices is accelerating, from raw materials to intermediate inputs to food, reflecting both global supply shortages and rising demand. Locally, a stronger exchange rate, ongoing moderation in unit labour costs, and sustained economic slack are expected to offset higher electricity and food price inflation, keeping the headline inflation forecast relatively stable.

"Against this backdrop, the MPC decided to keep rates unchanged at 3.5% per annum. The decision was unanimous," the governor said.

This is in line with market expectations.

25 economists surveyed by Reuters said the central bank would likely keep its repo rate at a record low, while a unanimous vote by 21 economists on Finder's repo rate forecast report, showed a rate hold.

While the hold was largely expected, some economists believe there is room for the Reserve Bank to cut rates by 25 or 50 basis points.

The Reserve Bank said that the implied policy rate path of the Quarterly Projection Model indicates an increase of 25 basis points in each of the second and fourth quarters of 2021. Economists however, largely expect rates to hike only in the first quarter of 2022 again.

Author Business Tech
Published 20 May 2021 / Views -
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