Reserve Bank keeps repo rate unchanged

The South African Reserve Bank’s Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 3.5% per annum.

In a statement on Thursday afternoon (23 September) Reserve Bank governor Lesetja Kganyago said that the decision follows largely unchanged inflation expectations and even with continued upside risks, the committee expects inflation to stay close to the mid-point over the forecast period.

“Against this backdrop, the MPC decided to keep rates unchanged at 3.5% per annum. The decision was unanimous,” he said.

“The implied policy rate path of the Quarterly Projection Model (QPM) indicates an increase of 25 basis points in the fourth quarter of 2021 and further increases in each quarter of 2022 and 2023.”

Kganyago said that these repurchase rate levels reflect a highly accommodative policy stance through the end of the forecast, keeping financial conditions supportive of credit demand as the economy continues to recover.

“The bank has ensured adequate liquidity in domestic markets and will continue to closely monitor funding markets for stress. In addition, regulatory relief provided to banks continues to support lending to households and firms.”

Looking forward 

Better anchored expectations of future inflation could keep interest rates lower for longer, and can be realised by achieving a stable public debt level, increasing the supply of energy, moderating administered price inflation and keeping wage inflation low into the recovery, Kganyago said.

“Such steps will enhance the effectiveness of monetary policy and its transmission to the broader economy. Economic and financial conditions are expected to remain volatile for the foreseeable future.

“In this uncertain environment, policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook.”

Kganyago said the MPC will seek to look through temporary price shocks and focus on second-round effects.

“As usual, the repo rate projection from the QPM remains a broad policy guide, changing from meeting to meeting in response to new data and risks,” he said.

Unchanged rates welcomed 

As the country heads to the local elections and given the economic destruction of the July riots, the country needs stability and a rapid return to economic growth, said Samuel Seeff, chairman of the Seeff Property Group.

“In this spirit, we welcome the decision by the SARB to retain the repo rate at 3.5%, and with that the prime lending rate at 7%. This is great news for buyers and will continue supporting activity and recovery of the property market,” he said.

“We expect the interest rate to remain flat into next year as there is simply no reason for the SARB to start their hiking cycle, he says. South Africa’s GDP recovery is lagging other G20 countries. Globally, central banks continue their aggressive stance of keeping interest rates low to stimulate economic recovery.”

South Africa has essentially already had three lockdowns with a potential fourth predicted for early December despite the vaccination roll-out, Seeff said.

On top of that, after four quarters of positive GDP growth, the economy is expected to again contract in the third quarter as a result of the July riots.

Seeff, therefore, remains of the view that the SARB should have considered a 25bps cut to boost sentiment and encourage businesses to invest in the economy so that we can get onto the growth path so desperately needed.

This was echoed by says Dr Andrew Golding, chief executive of the Pam Golding Property group, who said that a further hike should be delayed as long as possible.

“Given the underlying weakness and uneven recovery in the economy, market commentators ahead of today’s announcement included a call for the first hike to be delayed for as long as possible – even until 2023, depending on inflationary pressures and any potential shift in the inflation target,” he said.

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Reserve Bank keeps repo rate unchanged