Reza Hendrickse | Portfolio Manager | PPS Investments | mail me |
The Monetary Policy Committee (MPC) decided to leave the repo rate unchanged at 3.5%.
Three members of the committee preferred to leave rates unchanged, while two members preferred a 25 basis point reduction to the repo rate. This serves as a guide to the expectation that rates are more likely to decline than increase under current economic conditions.
The South African Reserve Bank (SARB) moderated their expectation of GDP growth for 2020 from -8.2% to -8.0%, and GDP growth is now expected to increase by 3.5% in 2021 and 2.4% in 2022. This is notably lower than global GDP growth expectations of a 4.4% decline in 2020 and an increase of 5.2% in 2021 according to the latest International Monetary Fund (IMF) forecasts.
Inflation expectations by the MPC remains muted, with a forecasted average of 3.2% for 2020, 3.9% for 2021 and 4.4% in 2022. The MPC has acted assertively since the start of the lockdown by reducing the repo rate to the current level of 3.5%. However, with the current available economic statistics, it is difficult to see why this has stopped. South African GDP growth is expected to disappoint relative to global levels and inflation is expected to remain below the midpoint of the target band over the next two years.
While monetary policy alone cannot reverse the difficulties many South Africans are facing, any further reduction to short term rates will have a stimulatory effect to the economy.
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