Get more Mail & Guardian
Subscribe or Login

Repo rate unchanged even as inflation risks grow

Despite growing inflation risks, the Reserve Bank’s monetary policy committee (MPC) has unanimously decided to keep the repo rate unchanged, at 3.5%.

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

Earlier this week, Statistics South Africa reported that annual consumer price inflation was 4.4% in April 2021, up from 3.2% in March 2021. But on Thursday, Reserve Bank governor Lesetja Kganyago said inflation is expected to be well contained in 2021.

The Reserve Bank forecasts that in 2021 consumer inflation will moderate at 4.2%, slightly lower than the previous forecast. Forecasts for 2022 and 2023 are unchanged at 4.4% and 4.5%, respectively.

“Inflation is contained. There is slack in the economy and this economy could use some support,” Kganyago said on Thursday.

If inflation does surprise on the upside, Kganyago said, the bank stands ready to act appropriately to make sure balance is restored. The repo rate is the bank’s main rebalancing tool, he explained.

“At the moment inflation — not just in South Africa, but globally — is being driven by supply constraints and disruptions to the global supply chain. This has led to rising inflation, not just in developing economies, but also in advanced economies,” Kganyago said.

“We will continue to monitor that and see whether there is any threat of the rise in inflation becoming permanent. And if our analysis is that it is turning into a continuous rise in inflation, we stand ready to act as appropriate.”

Thursday’s MPC statement said the overall risks to the inflation outlook appear to be to the upside. 

Food price inflation, already very high globally, has been more moderate than expected in the South African market, the statement notes. This is due to a stronger exchange rate and robust crop production. Domestic and global producer price inflation have also risen. 

Further risks could arise from higher domestic import tariffs and escalating wage demands. 

“Despite generally low pass-through, a weaker rand would create additional upside risk to inflation, alongside the ongoing risk from electricity and other administered prices,” the statement adds.

The Reserve Bank has forecast that South Africa’s economy will grow by 4.2% (up from 3.8%) in 2021. This as first quarter growth stands at 2.7%, which was much stronger than the 0.2% contraction that had been expected at the time of the March meeting. 

Despite rising oil prices and a higher total import bill, commodity prices have risen to new highs and trengthened income gains to the economy, the MPC statement noted. Moreover, household spending is expected to be healthy this year, in line with the easing of lockdown restrictions and low interest rates.

“Getting back to pre-pandemic output levels, however, will take time,” the statement warned. This as supply responses remain muted in some sectors harder hit by the pandemic and constrained investment

Subscribe to the M&G

Thanks for enjoying the Mail & Guardian, we’re proud of our 36 year history, throughout which we have delivered to readers the most important, unbiased stories in South Africa. Good journalism costs, though, and right from our very first edition we’ve relied on reader subscriptions to protect our independence.

Digital subscribers get access to all of our award-winning journalism, including premium features, as well as exclusive events, newsletters, webinars and the cryptic crossword. Click here to find out how to join them.

Sarah Smit
Sarah Smit
Sarah Smit is a general news reporter at the Mail & Guardian. She covers topics relating to labour, corruption and the law.

Related stories

Advertising

Subscribers only

‘People feel they have a stake in SAA’ — Gidon...

Interest in the beleaguered national carrier, which has received billions of rands in public funding, means criticism is inevitable

Soweto teacher dismissed for the alleged repeated rape of a...

The learner was 13 when the alleged rapes started, and they continued for two years until she asked to be moved to another school

More top stories

Eskom to take over distribution, billing at troubled Free State...

The Maluti-a-Phofung local municipality owes the power utility more than R5-billion

COMING UP: Ramaphosa addresses the nation

The president will give an update on developments in South Africa's response to the Covid-19 pandemic

ANC committed to paying staff salaries, but employees are not...

ANC staffers picketed outside Luthuli House on Tuesday after months of problems with salary payments

Kanalelo Boloetsi: Taking on Lesotho’s cellphone giants, and winning

A man who took on cellphone data regulators over out-of-bundle rates is featured in this edition of a series on human rights defenders in the SADC region
Advertising

press releases

Loading latest Press Releases…
×