Share

50/50 split on rates call: overview of key factors mentioned

Cape Town - SA Reserve Bank (SARB) governor Lesetja Kganyago said on Thursday that the bank's monetary policy committee (MPC) was split on whether to lower or keep rates stable before the decision was made to leave the interest rates unchanged. 

“The MPC has decided to keep the repurchase rate unchanged at 6.75% per annum. Three members preferred an unchanged stance and three members preferred a 25 basis point reduction. Ultimately the committee decided to keep the rate unchanged,” he said. 

"Given the heightened uncertainties in the economy, the MPC felt it would be appropriate to maintain the current monetary policy stance at this stage."

Kganyago said that SA's growth prospects remained “subdued". 

While SA’s gross domestic product had increased by 2.5% in the second quarter of 2017, the SARB didn’t expect this higher-than-expected growth rate to last. 

“This broad-based improvement, while welcome, is not expected to have a significant impact on the annual growth outcome. The bank’s forecast for GDP growth for 2017 has been revised up marginally from 0.5% to 0.6%, while the forecasts for 2018 and 2019 have remained unchanged at 1.2% and 1.5%,” he said.  

“This outlook is consistent with the Bank’s leading business cycle indicator which has been weakening since the beginning of the year, indicative of muted growth prospects.”

Concerns over unemployment rate 

Kganyago said that economic indicators did not bode well for an improvement in South Africa’s high unemployment rate. 

“The underlying weakness in the economy is evident in the 2.6% contraction in gross fixed capital formation during the second quarter. Of particular concern is the 6.9% decline in private sector fixed investment, reflecting the low levels of business confidence,” he said.  

He said this “subdued outlook” was expected to persist against a “backdrop of continued political and policy uncertainty, adding that investment trends “do not bode well for employment creation in the economy".

Kganyago noted that total employment declined in the second quarter of 2017, while the unemployment rate remained unchanged at 27.7%. “The public sector, previously the main source of employment growth in the economy, is likely to continue to shed jobs as fiscal constraints intensify,” he said. 

Rand risk 

The governor said that the rand remained “sensitive to political developments, weak economic growth prospects and the risk of further sovereign ratings downgrades”.

“However, it has been supported by persistent trade account surpluses and associated narrowing of the current account deficit.”

Speaking of headline CPI inflation, Kyanyago said SARB’s forecast remained unchanged at an annual average of 5.3% in 2017, and revised up by 0.1 percentage points to 5.0% and 5.3% in 2018 and 2019. 

“A lower turning point of 4.6% is still expected in the first quarter of 2018. The same pattern is observed in the forecast for core inflation which is unchanged at 4.8% for 2017, but adjusted up to 4.9% and 5.0% for the next two years,” he said.

He added that forecasts did not incorporate the most recent inflation outcome.

Global situation 

Kyanyago said that the global economic outlook remained “generally favourable despite some geopolitical risks” with a “relatively positive” outlook for emerging markets. 

He said that growth in the US was expected to remain strong in the short to medium term, with the devastation caused by the recent hurricanes expected to have only a limited and short- lived impact on growth. 

“The improved growth performance in the euro area also appears  to be sustained  and  region-wide,  while  the  Japanese  economy  has experienced moderate growth in the past few quarters,” he said.  

The governor said however that growth in the UK, one of SA’s largest trading partners, had slowed “following weak investment in the face of the Brexit headwinds”.

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.

Read Fin24's top stories trending on Twitter:

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.98
-0.4%
Rand - Pound
23.99
-0.4%
Rand - Euro
20.52
-0.3%
Rand - Aus dollar
12.36
-0.1%
Rand - Yen
0.13
-0.4%
Platinum
900.15
+0.4%
Palladium
1,000.00
-0.2%
Gold
2,213.05
+0.8%
Silver
24.68
+0.2%
Brent Crude
86.09
-0.2%
Top 40
68,324
+1.0%
All Share
74,499
+0.8%
Resource 10
57,210
+2.8%
Industrial 25
103,820
+0.5%
Financial 15
16,514
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders