Reserve Bank keeps rates unchanged – warns of Covid-19 resurgence

The South African Reserve Bank’s Monetary Policy Committee on Thursday (19 November) voted three-to-two, to keep interest rates on hold.

This leaves the total rate cut in 2020 at 300 points, with the repo rate sticking at 3.5% and the prime lending rate at 10%. The prime and base home loan rate remain at a historic low of 7.0%.

Reserve Bank governor Lesetja Kganayo said that while the easing of lockdown in South Africa has supported economic growth, the risk of future outbreaks remains, and the return to lockdown for many other global economies has kept global growth under strain.

Risks remain on the downside, and economic and financial conditions are expected to remain volatile for the foreseeable future, he said.

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

Kganyago said that the easing of lockdown restrictions in South Africa has supported economic growth, with high-frequency indicators continuing to show a pickup in economic activity during August and September.

As such, growth in the third quarter of the year is expected to be 50.3% quarter on quarter (seasonally adjusted, annualised). Annual growth is revised to a decline of 8% from a decline of 8.2% forecast in September.

GDP is now expected to grow by 3.5% in 2021 and by 2.4% in 2022.

Better global economic and financial conditions saw the rand appreciate by 6.9% since the September meeting. The rand has, however, depreciated by 8.7% against the USD since January and remains below its estimated long-run equilibrium value.

The implied starting point for the rand forecast is R16.50 to the US dollar, compared with R16.90 at the time of the previous meeting.

Against this backdrop, the MPC decided to keep rates unchanged at 3.5% per annum. Two members of the committee preferred a 25 basis point cut and three preferred to hold rates at the current level.

Covid-19 warning

Kganyago said that since the September meeting of the Monetary Policy Committee, it has become clear that Covid-19 infections will occur in waves of higher and lower intensity, caused in large part by pandemic fatigue and lapses in safety protocols.

“The virus is spreading rapidly in parts of North America and Europe and hotspots have emerged in some parts of South Africa.

“While we have learned how to better manage the risks of transmission and the design of lockdowns, these waves of infection will continue for some time,” he said.

The governor said that the fresh spread of the virus and reimposed lockdowns in other countries will extend the time needed for economies to get back to pre-pandemic activity levels.

He also warned that despite the welcome development in November of successful vaccine trials, global distribution of vaccines is likely to be slow, resulting in a modest pace of global economic growth into 2021.


The hold on rates was widely expected by the market, with 12 of 14 economists (86%) surveyed by Finder anticipating the hold. It is also in-line with the MPC’s previous Quarterly Projection Model which pointed to no further cuts in the near term, and two rate increases in the third and fourth quarters of 2021.

University of the Free State senior lecturer in banking and finance, Johan Coetzee, said that, as an emerging economy, it is important for South Africa to have a higher interest rate differential than major economies around the world.

“This will, at least to some extent, provide a buffer to volatile exchange rate movements.”

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Reserve Bank keeps rates unchanged – warns of Covid-19 resurgence