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Reserve Bank keeps repo rate unchanged at 6.5%

 

 

The South African Reserve Bank (SARB) has unanimously decided to keep the repo unchanged at 6.5%.

This follows a repo rate cut by 25 basis points in July from 6.75%.

The repo rate determines the interest rate to which the central bank lends money to commercial banks — which then affects the amount they lend to their consumers.

The rate also helps target inflation. The recent inflation rate is at 4.3% — which is well within the central bank’s target of 3% to 6%.

On Wednesday, Statistics South Africa announced that the recent annual inflation increase from 4% was driven by price increases in food and nonalcoholic beverages, housing and utilities, and miscellaneous goods and services.

It also said that food inflation reached its highest levels since February 2017.

In his announcement in Pretoria on Thursday, Reserve Bank governor Lesetja Kganyago said they welcome the sustained moderation in inflation outcomes and the fall in inflation expectations of about one percent since 2016.

“The committee would like to see inflation expectations also anchored closer to the midpoint of the inflation target range on a sustained basis,” he said.

The governor says their monetary policy actions will continue to focus on anchoring inflation expectations near the midpoint of the inflation target range in the interest of balanced and sustainable growth”.

Group chief economist at Standard Bank Goolam Ballim says the SARB’s decision was expected and it acted “appropriately.”

“The SARB continues to function in the pragmatic manner even though growth is weak. It continues to act reasonably by balancing growth concerns – with the risk of accelerating inflation profile through 2020”.

He says he did anticipate that it will not act now, but there is still room for it to cut rates especially if global growth continues to slow and if none threatening inflation does not occur.

But he predicates another cut will only come next year.

Independent economist Mike Schussler believes that the bank should have cut the rate to stimulate growth that the economy “needs”.

The South African gross domestic product’s forecast decreased from 1% to 0.6% in 2019. Growth for the upcoming years has also been decreased from 1.8% to 1.5% in 2020; to 1.8% from 2.0% in 2021.

In addition to the slowing economy, the unemployment rate has increased from 27.6% in the first quarter of 2019 to 29% in the second quarter of the year.

Schussler told the Mail and Guardian: “There is room to decrease rates, but unfortunately they did not do so”.

“I think we are in a state now where we should try to make maximum use of bringing down the interest rate. The rate could help a little.”

He says the rand is gaining momentum, the oil attack in Saudia Arabia is not a long term concern and that we have very low inflation.

Razia Khan, the chief economist for Africa and the Middle East at Standard Chartered, agrees with Schussler. She said they would have expected to see another rate cut.

Khan says it would have given room for the SARB to provide stimulus to the economy and help struggling consumers.

She says it would have been better for it to come now than later. Especially because “South Africa stands out from a lot of emerging economies that [their] growth is so weak that there is a real expectation that in the coming years it [should] only strengthens”.

She says in the coming months, there won’t be enough leg room for the bank to cut because there is the medium-term budget — and the country does not yet know the full extent of the [economy’s] deterioration. There is also Moody’s announced in November. 

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Tshegofatso Mathe
Tshegofatso Mathe is a financial trainee journalist at the Mail & Guardian

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