The South African Reserve Bank’s Monetary Policy Committee (MPC) has decided to increase the repurchase rate by 25 basis points to 6.75% per year, effective from 23 November 2018.
Governor Lesetja Kganyago said that three members of the MPC preferred an increase, while three members preferred a hold, with the final say effectively falling on the governor’s shoulders.
Of the 21 economists in a Bloomberg survey, 11 forecast the repo rate would be increased by 25 bps to 6.75%, and the rest predicted the rate would stay at 6.5%.
Kganyago said that the implied path of policy rates generated by the Quarterly Projection Model is for four rate hikes of 25 basis points, reaching 7.5% by the end of 2020.
“The forecasted endogenous interest rate path is built into our growth and inflation outlook. As emphasised previously, the implied path remains a broad policy guide which can and does change in either direction between meetings in response to new developments and changing risks.”
The SARB said that the weaker exchange rate and the impact of higher oil prices have contributed to increasing inflation since March 2018. At the same time, domestic growth remains weak, it said.
It forecasts growth in 2018 to average 0.6% – down from 0.7% in September. The forecast for 2019 and 2020 is unchanged at 1.9% and 2.0% respectively.
Since the September MPC, the rand has appreciated by 3.8% against the US dollar, by 6.6% against the euro, and by 5.2% on a trade-weighted basis.
The implied starting point for the rand is R14.50 against the US dollar, compared with R14.20 at the time of the previous meeting. At these levels, the Quarterly Projection Model assesses the rand to still be undervalued.
The local currency firmed against the dollar immediately, following the announcement:
- Dollar/Rand: R13.76 (1.14%)
- Pound/Rand: R17.78 (0.06%)
- Euro/Rand: R15.76 (-0.58%)