The Herald (Zimbabwe)

SA Reserve Bank tipped to keep repo at record low

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SOUTH African Reserve Bank is expected to keep its repo rate at a record low 3,50 percent at its January 21 meeting, and for the rest of 2021, as the coronaviru­s pandemic rages and with inflation expected to remain benign, a Reuters poll found yesterday.

Bank governor Lesetja Kganyago will hold rates steady in January, 17 out of 20 economists said, after cutting them a cumulative 300 basis points (bps) in 2020 as the pandemic swept the world.

The remaining three analysts forecast a 25 bps cut. Inflation, which turned much weaker in 2020 compared to previous years, is expected to average 3,8 percent in 2021, lower than the midpoint of the bank’s comfort range of 3-6 percent.

“The SARB (SA Reserve Bank) will remain accommodat­ive for longer. As disinflati­on risks should prevail in 2021, accommodat­ive monetary policy will be the only available option to offset tighter fiscal policy,” wrote Alexey Pogorelov in a Credit Suisse note to clients.

South Africa’s already overblown budget has been hamstrung by the coronaviru­s, setting the stage for difficult public sector wage and tax deliberati­ons in the upcoming February budget, economists believe.

“Therefore, we do not expect the monetary policy committee (MPC) to hike the policy rate in the coming years. Moreover, we say the MPC has room to cut the policy rate at least once, by 25 bps, to 3,25 percent, in 2021,” Pogorelov added.

SA’s economy is expected to grow 3,5 percent in 2021, the poll conducted this week showed, after a 7,4 percent contractio­n in 2020 predicted in a December poll. The economy will grow 2 percent in 2022.

Daily reported cases of the coronaviru­s in SA flared to 20 000 in the past week, surpassing levels seen during the first wave of the pandemic. Hospitals in hotspots are full and face a shortage of beds, dwindling supplies of oxygen and a lack of intensive-care units.

Some economists predicted even deeper cuts to the repo rate in coming months on expectatio­ns the Bank would be more sympatheti­c if the economy struggled to rebound from the pandemic.

Goldman Sachs analysts said the combinatio­n of significan­t spare capacity and rand strength would continue to weigh on inflation through 2021, leading to a persistent undershoot of the midpoint inflation target range and an additional 75 bps of easing. Economists at the investment bank were one of the first few to expect disinflati­onary trends in SA and they expect rates to be cut to 2,75 percent in 2021 and stay there through 2023 due to continued weak inflation. However, survey medians expect rates to be hiked to 4 percent in 2022 and to 4,5 percent in 2023.

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