Repo rate unchanged at 3.5% per year

The monetary policy committee (MPC) decided to keep rates unchanged at 3.5% per year, although two members of the committee preferred a 25 basis point cut.

Professor Jannie Rossouw, interim head of the Wits Business School, said listening to the media statement of Lesetja Kganyago, governor of the SA Reserve Bank (Sarb), he was expecting another 25 basis point cut and was quite surprised when it was announced that it would remain unchanged.

“Is there something he is not telling us?” Rossouw wanted to know and added that he liked the focus on keeping inflation under control.

Kganyago said the decision was made after considering future inflation. “Expectations of future inflation continued to moderate this year and have shifted slightly below the mid-point of the band for 2021,” he said.

“Market-based expectations for short- and medium-term inflation have eased slightly, while longer-term inflation expectations remain higher. The MPC notes that the slow recovery will keep inflation below the midpoint of the target range for this year and the next.

“Unless risks outlined earlier materialise, inflation is expected to be well contained over the medium term, remaining below but close to the midpoint in 2021 and 2022.”

According to Kganyago, it has become clear that Covid-19 infections will occur in waves, while it is spreading rapidly in parts of North America and Europe with hotspots in some parts of SA.

“As expected, second-quarter GDP outcomes for most economies were massively negative. Third-quarter recoveries have generally been robust and economies will continue to recover in the fourth quarter. The International Monetary Fund now expects global gross domestic product (GDP) to contract by about 4.4% this year.

“Although global GDP forecasts improved from September, it is probable that global growth will be revised somewhat in coming months.”

Kganyago pointed out that further easing of lockdown restrictions has supported economic growth, with high frequency indicators continuing to show a pickup in economic activity during August and September.

Although global GDP forecasts improved, it is probable growth will be revised in coming months.

Lesetja Kganyago Govenor, SA Reserve Bank