SA interest rates unchanged | Fin24
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SA interest rates unchanged

May 24 2018 15:18
Fin24 team

The monetary policy committee of the South African Reserve Bank has decided to keep the repo rate unchanged at 6.5%, in line with the expectations of economists. 

At its previous meeting in March the MPC decided to cut interest rates by 25 basis points to make the repo rate 6.5%, and the prime lending rate 10%. The repo rate is the benchmark interest rate at which the central bank lends money to commercial banks and the prime rate the rate at which commercial banks lend money to borrowers.

SARB governor Lesetja Kganyago said the decision to keep the repo rate unchanged was unanimous. 

"At [6.5%], the MPC still assesses the stance of monetary policy to be accommodative and appropriate given the forecast inflation trajectory and the current state of the economy. However, with risks and uncertainties at high levels, the MPC will maintain its vigilance to ensure that inflation remains well within the inflation target range, and will adjust the policy stance should the need arise," he said. 

The last time SARB cut the repo rate before March was in July 2017, when the MPC reduced the rate by 25 basis points from 7% to 6.75%.

The rand strengthened marginally in the wake of the decision, moving from R12.42/$ to R12.39/$.

"[The] SARB remains concerned with inflation and feels the bottom of the cycle has been reached and the pressure will be on the upside," said TreasuryONE in a snap reaction note to the announcement. 

Decision in line with expectations 

Ahead of Thursday's MPC announcement analysts polled by Fin24 forecast that the higher inflation print for April made a strong case for the MPC to keep the repo rate on hold. Statistics SA's consumer price index for April, meanwhile, came in at 4.5%, compared to 4.1% reported in March.

Fuel hikes and increases in so-called sin taxes drove up inflation, while the impact of the value-added tax increase by one percentage point was more muted, according to FNB senior economic analyst Jason Muscat.

Momentum Investments expected a “stable outlook” for interest rates and possibly a cut in the third quarter of 2018 provided inflation expectations shift to the midpoint of the target band

In March the MPC members were split about the decision to lower the repo rate. At the time SARB governor Lesetja Kganyago said SARB's inflation forecast had shown a moderate improvement. Indications were that a low point of the inflation cycle had been reached. The main changes in the forecast related to the exchange rate, among others things, he said.He cautioned that SARB's 5-year inflation expectations had declined. He said the MPC would prefer its inflation expectation anchor closer to the mid-point of the target range of 3% to 6%.

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