Repo rate remains unchanged

The monetary policy committee (MPC) of the Reserve Bank kept the repo rate unchanged again at 8.25% in line with the expectations of economists.

The decision was unanimous. Lesetja Kganyago, governor of the South African Reserve Bank (Sarb), announced the decision yesterday, noting that at the repo rate level, policy is restrictive, consistent with the inflation outlook and the need to address inflation.

The MPC independently makes monetary policy to achieve the inflation target that is between three and six percent. Monetary policy is implemented by setting the repo rate, which affects the borrowing costs of the financial sector which in turn affects the economy.

Kganyago warned that there are still serious risks that could cause inflation to increase from global and domestic sources, while the economic outlook is highly uncertain.

The decision came after Statistics SA announced on Wednesday that the inflation rate for December eased to 5.1% after registering 5.5% in October.

“The inflation and repo rate projections from the updated quarterly projection model remain a broad policy guide, changing from meeting to meeting in response to new data.”

Kganyago emphasised that guiding inflation expectations back towards the mid-point of the target band will improve the economic outlook and reduce borrowing costs.

“Since early 2020, the MPC has recommended additional means of strengthening economic conditions, including achieving a prudent public debt level, increasing the supply of energy, keeping administered price inflation low and real wage growth in line with productivity gains,” he said.

These steps would also strengthen monetary policy effectiveness and its transmission to the broader economy.

Kganyago said global economic conditions remain mixed and the outlook uncertain and while headline inflation continues to ease in much of the world, core inflation remains sticky and high.

Advanced as well as emerging economies will likely see modest economic growth this year, despite better-than-expected outcomes in 2023, and he said in most countries reaching inflation targets, reducing fiscal deficits and containing or lowering debt levels will stay as key policy priorities, while financing conditions are expected to remain tight.

Therefore, the Sarb expects relatively weak global growth of 2.6% in 2024.

Kganyago said that the domestic gross domestic product outcome for the third quarter of 2023 was weaker than expected, at a negative 0.2%.