Sarb keeps repo rate unchanged

The repo rate of the South African Reserve Bank (Sarb) remains unchanged at 8.25%, bank governor Lesetja Kganyago confirmed in a widely expected move on Thursday.

This is the second consecutive time that the Sarb’s Monetary Policy Committee (MPC) has opted to keep rates steady, to the relief of many South Africans and businesses. It means that the prime lending rate of commercial banks remains at 11.75%.

The move was a tight call, with Kganyago saying three members of the five-member MPC voting to hold the repo rate, while two members voted for a 25-basis point hike.

Read: SA set to hold rates, keep hawkish bias

The MPC took a ‘hold’ decision at its last meeting in July, following an aggressive hiking cycle of a cumulative 475 basis points since late 2021 in the wake of spiking inflation.

Inflation is now within the Sarb’s target range, despite a slight uptick in the latest CPI reading for August, which came in at 4.8% year on year on Wednesday. However, headline inflation in July fell more than expected to a two-year low of 4.7% from 5.4% in June.

With services inflation lower in the near term, headline inflation for 2023 is revised down to 5.9% (from 6.0%). The headline inflation forecast for 2024 increases slightly to 5.1%, before stabilising at 4.5% in 2025. #SARBMPCSEP23 pic.twitter.com/X15lz9NPvg

— SA Reserve Bank (@SAReserveBank) September 21, 2023

With the oil price spiking and the rand remaining under pressure around the R19 to the US dollar mark, the Sarb’s last MPC meeting for the year in November will be closely watched.

“While goods price inflation has eased in much of the world, core inflation remains elevated and oil prices have increased significantly, keeping consumer price inflation from falling further,” Kganyago said on Thursday.

“Globally, monetary policy is likely to remain focused on ensuring inflation continues to retreat,” he added.

In a Q&A media session following the latest MPC announcement, the governor declared that “the job of tackling inflation is not done”.

In his MPC statement, he noted: “With services inflation lower in the near term, headline inflation for 2023 is revised down to 5.9% [from 6%]. The headline inflation forecast for 2024 increases slightly to 5.1%, before stabilising at 4.5% in 2025.”

However, Kganyago warned that the risks to the inflation outlook are still “assessed to the upside”.

Increased GDP growth?

In somewhat of a surprise, he noted that the Sarb’s latest GDP growth forecast for the SA economy in 2023 has been upped to 0.7%, compared to its July forecast of 0.4%.

“The forecast for investment for the year is revised up to 7.7% [from 4.4%],” he added.

However, Kganyago said the bank’s GDP growth forecast for 2024 and 2025 is unchanged from the previous meeting, at 1% and 1.1%, respectively.

“Despite considerable reprieve in the winter months, South Africa’s electricity load shedding has increased and prices for commodity exports continue to weaken,” he noted.

“In the near term, stronger El Niño conditions threaten the agricultural outlook, while global climatic events present additional risks.”

“Energy and logistical constraints remain binding on the growth outlook, limiting economic activity and increasing costs,” he added.

“While households and firms exhibit some resilience, economic growth has been volatile and highly sensitive to new shocks. An improvement in logistics and a sustained reduction in load shedding, or greater energy supply from alternative sources, would significantly increase growth,” Kganyago said.

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