Bank keeps interest rates unchanged

Rand remains firm after decision

The Reserve Bank kept interest rates unchanged yesterday‚ when the monetary policy committee (MPC) wrapped up its first meeting of 2018.

With a number of risk events on the horizon‚ the decision was expected by the majority of analysts‚ and leaves the repo rate at 6.75%‚ where it has been since the July 2017 cut of 25 basis points – the first cut in five years.

Reserve Bank governor Lesetja Kganyago said since the previous meeting of the MPC‚ the rand had appreciated by 13.1% against the dollar‚ by 9.6% against the euro‚ and by 10.6% to the pound on a trade-weighted basis.

He did warn‚ however‚ that “in the near term‚ the rand is expected to remain sensitive to sentiment generated by political developments. The lingering prospect of a credit-ratings downgrade to sub-investment grade by Moody’s [also] continues to weigh on the longerterm outlook for the rand.”

Within a few minutes of the decision being announced‚ the rand strengthened to R12.19 to the dollar‚ from R12.25 prior to the governor’s speech.

A Bloomberg consensus of 19 economists and analysts showed that 13 expected rates to be unchanged‚ while five forecast a cut of 25 basis points‚ with one predicting a 50-basis-point drop.

Prior to the MPC meeting‚ Standard Bank trader Warrick Butler said there was no way the Reserve Bank was going to cut rates a month before a crucial sovereign-rating announcement by Moody’s‚ “especially in light of the budget speech the day before and the cost implications of the new‚ free-education policy”.