Reserve Bank keeps interest rates unchanged

The SA Reserve Bank’s monetary policy committee (MPC) left the benchmark interest rate unchanged at 3.5% on Thursday, even as it revised down its forecasts for growth in an economy still navigating its way through the fallout from the coronavirus shock.

The decision was viewed as a close call as, ahead of the announcement by Reserve Bank governor Lesetja Kganyago, nine out of 17 analysts polled by Bloomberg pencilled in a cut of 25 basis points, BusinessLIVE reported.

But there were distinct risks that the Bank may delay any moves to get a better sense of the effect previous rates cuts are having and to assess the outcome of the upcoming medium-term budget policy statement (MTBPS) in October, according to economists.

The Bank revised its GDP forecasts and is now expecting the economy to shrink 8.2% in 2020, compared to the 7.3% contraction forecast in July. It now expects the economy to grow by 3.9% in 2021 and by 2.6% in 2022.

The revisions came in the wake of a dire GDP print from Stats SA last week that revealed a 51% quarter-on-quarter, seasonally adjusted and annualised contraction, during the worst of SA’s hard lockdown. If the second-quarter results are not annualised, GDP contracted 16.4% quarter on quarter.

The MPC decision followed a briefing by President Cyril Ramaphosa on Wednesday night announcing that SA will move to level 1 lockdown regulations from midnight on Sunday September 20, reopening SA’s borders and bringing hope that the economy can begin to recover. SA has been under various phases of lockdown since late March.

In an effort to support households and businesses through the worst of the pandemic crisis and lockdown, the Bank has slashed the repo rates five times this year. At this level, it remains the lowest policy rate the bank has implemented in about 47 years.

The Bank’s headline consumer price inflation forecast averages 3.3% in 2020 and is lower than previously forecast at 4% in 2021 and at 4.4% in 2022.