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SARB Keeps Home Interest Prime Rate Unchanged At 7% - Repo Rate 3.5%


SARB Keeps Home Interest Prime Rate Unchanged At 7% - Repo Rate 3.5%

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

In a statement on Thursday afternoon (22 July) Reserve Bank governor Lesetja Kganyago said that despite steady improvements in vaccination rates, stronger confidence, and better global economic growth, the Covid-19 virus continues to weigh on global prospects.

"Vaccination rates are lagging in many emerging markets and developing countries. Until populations develop sufficient immunity to curb virus transmission, waves of infection are likely to continue.

"As indicated by South Africa's public health authorities, the third wave of virus infection is currently peaking. Additionally, by raising uncertainty and reducing investor confidence, the recent unrest in parts of the country is likely to slow our ongoing recovery.

"Lockdowns and other restrictive measures that remain in place in several countries will continue to weigh on economic activity, particularly in sectors dependent on close contact, such as travel, tourism, hospitality and leisure," he said.

The governor noted that the domestic economy grew by 4.6% in the first quarter of 2021, much stronger than the 2.7% expected at the time of the group's May meeting. That outcome reflected better sectoral growth performances and robust terms of trade. Commodity prices have remained high, sustaining income gains despite higher oil prices, he said.

"However, recent unrest and economic damage could have lasting effects on investor confidence and job creation. We estimate the unrest to have fully negated the better growth results from the first quarter, resulting in an unchanged estimate of 4.2% for growth in 2021."

Kganyago said that the direct and indirect costs of recent events will likely further slow South Africa's economic recovery. Although some sectors - notably mining and manufacturing - have largely recovered to pre-pandemic levels, production remains muted in sectors harder hit by the pandemic and in regions now affected by the unrest, he said.

GDP, the governor said, is expected to grow by 2.3% in 2022 and by 2.4% in 2023, unchanged since the May meeting. "Overall, and after revisions, the risks to the medium-term domestic growth outlook are assessed to be balanced.

"High export prices, stronger household incomes and a somewhat better investment outlook are backed up by generally supportive global conditions, despite ongoing financial volatility. Recent events in the country, their impact on vaccinations, a longer than expected lockdown, limited energy supply and policy uncertainty pose downside risks to growth," he said.

Consumer price inflation

Headline CPI forecast has been revised higher for 2021 to 4.3% (from 4.2%), lower to 4.2% in 2022 (From: 4.4%) and unchanged at 4.5% in 2023. The core inflation forecast for 2021 is slightly lower at 2.9% (from 3.0%), 3.7% in 2022 (from 4.0%) and unchanged in 2023 at 4.3%.

Future hikes

Looking ahead, Kganyago said that the implied policy rate path of the Quarterly Projection Model (QPM) indicates an increase of 25 basis points in the fourth quarter of 2021 and each quarter of 2022.

"These repurchase rate levels reflect a highly accommodative policy stance through the end of 2022, keeping financial conditions supportive of credit demand as the economy recovers from the pandemic and associated lockdowns."

He said that the bank has ensured adequate liquidity in domestic markets and will continue to closely monitor funding markets for stress.

"In addition, regulatory relief provided to banks continues to support lending to households and firms. Better anchored expectations of future inflation could keep interest rates lower for longer and can be realised by achieving a stable public debt level, increasing the supply of energy, moderating administered price inflation, and keeping wage inflation low into the recovery.

"Such steps will enhance the effectiveness of monetary policy and its transmission to the broader economy."

The governor warned that economic and financial conditions are expected to remain volatile for the foreseeable future. "In this uncertain environment, policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook. The MPC will seek to look through temporary price shocks and focus on second-round effects," he said.


Author Business Tech
Published 22 Jul 2021 / Views -
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