SARB also revised up its economic growth forecast for 2021 to 3.8 percent from 3.6 percent in January, despite the first quarter growth expected to ease from 1 percent to -0.2 percent. Photo: Thobile Mathonsi/African News Agency (ANA)
SARB also revised up its economic growth forecast for 2021 to 3.8 percent from 3.6 percent in January, despite the first quarter growth expected to ease from 1 percent to -0.2 percent. Photo: Thobile Mathonsi/African News Agency (ANA)

SARB hints at tough times ahead

By Siphelele Dludla Time of article published Mar 26, 2021

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JOHANNESBURG - THE RAND fell yesterday after the SA Reserve Bank (SARB) moved to strike a balance between rising inflation risks and relatively fragile growth.

The rand slipped 0.2 percent to R15.06 against the dollar by 5pm as SARB’s implied policy rate path of the Quarterly Projection Model indicated an increase of 25 basis points in each of the second and fourth quarters of 2021.

SARB consumer inflation forecast for 2021 rose to 4.3 percent from 4 percent in January, while the core inflation forecast eased to 3.3 percent from 3.4 percent.

The bank said inflation would average higher this year, but still within the 3 to 6 percent target range.

SARB also revised up its economic growth forecast for 2021 to 3.8 percent from 3.6 percent in January, despite the first quarter growth expected to ease from 1 percent to -0.2 percent.

FXTM’s Lukman Otunuga said the central bank’s rate cuts cycle could soon be a thing of the past.

“If anyone was unsure whether the SARB’s easing cycle was well and truly over, today’s monetary policy meeting and rate decision acted as final confirmation,” Otunuga said yesterday.

“Should higher oil prices and an increase in electricity costs result in accelerating inflation, the SARB may present a stronger argument to raise interest rates.”

However, FNB chief economist Mamello Matikinca-Ngwenya said the gross domestic product was expected to rebound to 3.7 percent supported by stronger global demand.

“The risk to this view is a third wave of the virus, which will lead to further lockdown measures,” she said.

“Barring any major shocks to growth, we expect the SARB to keep rates steady throughout the year.”

SARB made the first unanimous decision in nearly a year to leave the repo rate as the interest rates easing cycle looked over in spite of the rise in administered fuel and electricity prices holding an upside risk to the inflation trajectory.

The bank left the repurchase rate (repo rate) unchanged at 3.5 percent for a fourth successive meeting.

Governor Lesetja Kganyago said while global food price inflation remained elevated, local food price inflation was slightly lower than previously expected and should remain broadly contained due to higher local crop production.

“Oil prices have increased sharply this year and are expected to remain at these levels over the forecast horizon,” he said. Electricity and other administered prices remain upside risks to the inflation trajectory.”

Kganyago said though inflation expectations of households continued to moderate from quite high levels, market-based expectations for short-term inflation had increased for the medium and longer-term horizons.

Anchor Investment’s Casey Delport said Kganyago took the opportunity to nudge the government to get the fiscal side of the economy under control.

“His comments bemoaning the state of Eskom, fuel prices, and South Africa’s slow vaccine rollout further contribute to what is a rather mixed economic outlook,” Delport said.

“Overall, the SARB expects economic and financial conditions to remain volatile for the foreseeable future.”

BUSINESS REPORT

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