JOHANNESBURG – The SA Reserve Bank Governer, Lesetja Kganyago, on Thursday announced that South Africa's interest rate would remain unchanged.
This was the Monetary Policy Committee's (MPC) fifth policy meeting of the year, which came against the backdrop of a sharp drop in the rand and the country's economy slipping into a recession, since the previous meeting in July.
The MPC has decided to keep the repurchase rate unchanged at 6.5% per annum. Four members preferred an unchanged stance and three members preferred a 25 basis points increase. pic.twitter.com/Pwab0W2wO7
— SA Reserve Bank (@SAReserveBank) September 20, 2018
The economy slipped into a recession after gross domestic product contracted by 0.7 percent in the second quarter following a 2.6 percent shrinkage in the first three months of the year, with the agriculture, transport and trade sectors struggling the most.
The Reserve Bank kept the repo rate unchanged at 6.5 percent in July, but warned that inflation pressures were rising.
Kganyago said that four members of the MPC preferred an unchanged stance and three members preferred a 25 basis points increase. He reiterated that quarter-on-quarter GDP contracted by 0.7 percent in the second quarter, revised down from -2.2 percent to -2.6 percent, though year-on-year basis, GDP growth in the first quarter was 0.8 percent
The Reserve Bank now forecasts growth in 2018 to average 0.7 percent, down from 1.2 percent in July.
Kganyago said that headline inflation was now expected to remain at an average 4.8 percent in 2018, before increasing to 5.7 percent in 2019, up from a 5.6 percent projection, and moderating to 5.4 percent in 2020. Headline consumer price index is expected to peak around 5.9 percent in the second quarter of 2019.
Most economists and financial analysts predicted that the rates would remain unchanged while some were not ruling out a rise before the meeting on Thursday, given the sharply weaker rand largely due to global market turmoil fanned by a trade war centred mainly on China and the US.
Quarter-on-quarter GDP contracted by 0.7% in the Q2 & GDP data for Q2 was revised down from -2.2% to -2.6%. However, on a year-on-year basis, GDP growth in Q1 was 0.8% & 0.4% in Q2. The SARB now forecasts growth in 2018 to average 0.7% (down from 1.2% in July) - @KganyagoLesetja pic.twitter.com/bocBPxCGAk
— SA Reserve Bank (@SAReserveBank) September 20, 2018
Tighter global financial conditions and the change in investor sentiment towards emerging markets remain key external risks to the rand, and it is likely that the rand, along with other emerging market currencies, will remain volatile. - @KganyagoLesetja
— SA Reserve Bank (@SAReserveBank) September 20, 2018
Since the July MPC, the rand has depreciated by 7.3% against the US dollar, by 8.1% against the euro, and by 7.1% on a trade-weighted basis. At current levels, the SARB’s model assesses the rand to be undervalued. - @KganyagoLesetja pic.twitter.com/SIO17ixQkA
— SA Reserve Bank (@SAReserveBank) September 20, 2018