SA RESERVE Bank governor Lesetja Kganyago. Picture: Thobile Mathonsi African News Agency (ANA)
SA RESERVE Bank governor Lesetja Kganyago. Picture: Thobile Mathonsi African News Agency (ANA)

Analysis: SA Reserve Bank keeps interest rates unchanged

By Siphelele Dludla Time of article published Sep 17, 2020

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JOHANNESBURG - The South African Reserve Bank (Sarb) has decided to keep the repurchase rate (repo rate) unchanged at 3.5 percent as the overall risks to the inflation outlook at this time appear to be balanced.

With inflation currently just 3.2 percent, near the lower end of the 3-6 percent target range, there was the possibility of a further reduction in the repo rate in order to provide relief for debt-laden consumers.

Sarb Governor Lesetja Kganyago said the bank’s Monetary Policy Committee (MPC) noted that inflation will remain contained below the midpoint of the target range for this year.

Kganyago said expectations of future inflation continued to soften this year and have shifted slightly below the midpoint of the band for 2021.

He said two members of the committee preferred a 25 basis point cut and three preferred to hold rates at the current level following a 300 basis points rate cuts for the year to date.

“Against this backdrop, the MPC decided to keep rates unchanged at 3.5 percent per annum,” Kganyago said.

“Monetary policy has eased financial conditions and improved the resilience of households and firms to the economic implications of Covid-19.”

Kganyago, however, reiterated that monetary policy alone cannot improve the potential growth rate of the economy or reduce fiscal risks.

He said the implied policy rate path of the Quarterly Projection Model indicated no further repo rate cuts in the near term, and two rate increases in the third and fourth quarters of 2021.

Sarb’s headline consumer price inflation forecast now averages 3.3 percent in 2020 and is lower than previously forecast at 4 percent in 2021, and 4.4 percent for 2022.

The forecast for core inflation is lower at 3.4 percent in 2020, and remains broadly stable at 3.7 percent in 2021, and 4 percent in 2022.

Chairman of the Seeff Property Group Samuel Seeff said the Sarb decision to retain the repo rate will be a vital stimulus to reignite the economy.

“Buyers are able to take advantage of the lowest interest rate in over five decades,” Seeff said.

“The positive activity in the market paves the way for more movement and new stock to come onto the market. Developers may also consider coming back if this is sustained.”


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