Reserve Bank decides to hold repo rate at 7% and prime lending rate at 10.5%

The committee unanimously decided the repo rate would remain at 7%. The prime lending rate will stay fixed at 10.5%.

Announcing the decision on Thursday afternoon, Reserve Bank governor Lesetja Kganyago emphasised the influence the Brexit vote — the United Kingdom’s vote to leave the European Union — had on the global and domestic economic environment.

“The outlook is clouded by the uncertainty surrounding the longer-term market and global growth implications of Brexit,” said Kganyago. “The implications for the rand and domestic growth, and ultimately inflation, could vary quite significantly depending on which scenario plays out.”

Although the rand depreciated sharply in the immediate aftermath of the referendum, it has reversed the losses.
Since the previous meeting of the committee, the rand appreciated by 11% against the dollar, by 12.9% against the euro and by 23% against sterling.

“The rand has been supported by the global search for yield,” Kganyago said. Consumer price inflation, dragged upward by food price inflation, came in at 6.3% for June, compared with 6.1% in May. The bank’s measure of core inflation — which excludes food, fuel and electricity — measured 5.6%, up from 5.5% previously.

Kganyago said exchange rate developments will be critical for monetary policy decisions in the immediate future.

“Current exchange rate levels are stronger than those implicit in the forecast, providing some buffer to the projections. The rand remains sensitive to both domestic and external developments, and the recent trends can be quickly reversed,” he said.

The appreciation of the rand, coupled with a lower average oil price, means there will probably be a size- able cut in retail prices in August.

The Brexit vote has modified expectations regarding monetary policy in advanced economies, he said. “Expectations are for a reduction in the Bank of England policy rate in the near future, with the prospect of a resumption of quantitative easing. Markets are now expecting the US policy rate to remain unchanged for some time.”

Isaah Mhlanga, an economist at Rand Merchant Bank, said he expected the Reserve Bank to cut rates next year to support growth. Kganyago said the data analysed by the monetary policy committee this week did not warrant any discussion of a rate cut.

Lisa Steyn

Lisa Steyn

Lisa Steyn is a business reporter at the Mail & Guardian. She holds a master's degree in journalism and media studies from Wits University. Her areas of interest range from energy and mining to financial services and telecommunication. When she is not poring over annual reports, Lisa can usually be found pottering about the kitchen. Read more from Lisa Steyn

Client Media Releases

MTN, SAPS recover stolen batteries
Supersonic keeps customer interaction simple too
Food gardens planted at Mtubatuba school for Mandela Day
The Field guide to business success
Why your company needs a Web site