Reserve Bank holds repo rate as downgrades loom

THE Reserve Bank kept interest rates unchanged yesterday when the monetary policy committee (MPC) wrapped up its last meeting of the year.

That leaves the repo rate at 6.75%‚ where it has been since July’s cut of 25 basis points – the first cut in five years.

With a pair of possible credit rating downgrades hanging over South Africa‚ there was little expectation that the bank would cut rates this time – unlike in September‚ when the decision to hold the repo came as a surprise to many.

Downgrades could come tonight‚ when Moody’s and S&P Global Ratings are expected to announce their decisions.

This would negatively affect the rand, which has a direct impact on inflation‚ and the bond market, affecting the price the government pays to borrow money.

Yesterday, Fitch reaffirmed South Africa’s status at sub-investment grade with a stable outlook.

Fitch is the only one of the three ratings agencies that already has South Africa’s local and foreign debt in junk territory.

Reserve Bank governor Lesetja Kganyago said yesterday: “Domestic event risks‚ including rating agency reviews and the economic policy implications of the ANC electoral conference‚ are likely to dominate rand movements over the coming weeks.”

He ascribed this to uncertainty about the ANC’s December conference‚ concern about US monetary tightening‚ and negative reaction to Finance Minister Malusi Gigaba’s medium-term budget policy statement.

There are also concerns about plans for free higher education and its effect on the fiscus. – BusinessLIVE