Repo rate unchanged as Reserve Bank sees lower growth for South Africa

The South African Reserve Bank’s Monetary Policy Committee has left the repo rate unchanged at 6.75%.

Delivering the outcome of the MPC meeting, Reserve Bank governor Lesetja Kganyago said that while the prospects for global growth have rebounded, downside risks are still prevalent both locally and internationally.

Specifically, there are the threats from global trade wars, coupled with domestic electricity constraints and strikes in the mining sector.

Business and consumer confidence are under pressure, while inflation remains around the mid-point of the projected range.

Because of these pressures, the Reserve bank now expects GDP growth for 2019 to average 1.0% (down from 1.3% in March).

The forecast for 2020 and 2021 was unchanged at 1.8% and 2.0%, respectively.

The near term growth outlook, Kganyago said, is limited by the larger than expected slowdown in the first quarter, weak business and consumer confidence as well as growing pressure on household disposable income.

“Based on recent short term indicators and negative growth in mining and manufacturing, GDP is expected to contract in the first quarter of 2019,” he said.

“The overall risks to the inflation outlook are assessed to be more or less evenly balanced. While there is scope for further moderation in meat and services prices, oil prices are expected to remain elevated and global food prices appear to have bottomed out,” Kganyago said.

“Electricity and water prices, among other administered prices, present additional upside risks.”

On this backdrop, the Reserve Bank said it elected to hold rates. Three members preferred to keep rates on hold and two members preferred a cut of 25 basis points.

According to the MPC, the implied path of policy rates generated by the Quarterly Projection Model is for one cut of 25 basis points to the repo rate by the end of first quarter of 2020.

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