The South African Reserve Bank’s Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 3.5%.
In a statement on Thursday afternoon (25 March) Reserve Bank governor Lesetja Kganyago said the decision to hold the rate was unanimous among MPC members.
However, he said that further rate hikes could be on the cards later in 2021 based on projection models.
“The implied policy rate path of the Quarterly Projection Model indicates an increase of 25 basis points in each of the second and fourth quarters of 2021,” he said.
“Compared to the previous meeting, the shift in the rate path from the third to the fourth quarter is due to somewhat lower inflation in 2022.”
Kganyago added that the overall risks to the inflation outlook appear to be balanced.
A more appreciated nominal exchange rate in recent months, and generally low pass-through, is expected to continue to moderate some inflationary pressure, he said.
“While global food price inflation remains high, local food price inflation is slightly lower than previously expected and should remain broadly contained due to higher local crop production.
“Oil prices have increased sharply this year and are expected to remain at these levels over the forecast horizon.”
Kganyago said that electricity and other administered prices remain upside risks to the inflation trajectory.
While there are no demand side pressures evident at present, higher growth in 2021 and no change in the potential growth rate implies a narrowing of the output gap over the forecast period, compared to the January meeting, he said.
“Unless the risks outlined earlier materialise, inflation is expected to be well contained in 2021, before rising to around the midpoint of the inflation target range in 2022 and 2023.”
Property sector welcomes unchanged rates
Dr Andrew Golding, chief executive of the Pam Golding Property group, said that the decision to hold rates was largely expected and is expected to benefit homeowners.
“This means that the prime lending rate remains steady at a near 50-year low of 7% with indications that it is unlikely to dip further, so for potential homeowners, it is a reminder that if you are thinking of buying a home, now would be a good time to secure an attractive interest rate.
Economists in the main argued that interest rates are currently at the correct level given the prevailing economic environment.
From a residential property perspective, last year’s aggressive rate cuts have fuelled home buying to a large degree, with 2020 surprising many by showing robust home-buying activity. In fact, according to FNB, 2020 registered the highest volume of mortgage approvals in South Africa in more than a decade.
“While the economy is expected to rebound this year, the robust growth rate forecast will largely be the result of comparisons to last year’s exceptionally weak levels,” Golding said.