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By Siphelele Dludla 
September 18, 2020
JOHANNESBURG – The South African Reserve Bank on Thursday left the door open for a final rate cut before Christmas after two members of the Monetary Policy Committee (MPC) voted in favor of a 25 basis point rate cut.
Central bank governor Lesetja Kganyago said the MPC was not unanimous in the decision to maintain the repurchase rate, but noted that the rate easing cycle could be coming to an end.
Kganyago said South Africans should expect an upward revision of the tariff regime in the third and fourth quarters of 2021.
He said the repurchase rate projection from the quarterly projection model remains a broad policy guide, changing from meeting to meeting in response to new data and risks.
“In this highly uncertain environment, future decisions will remain data-driven and sensitive to the balance of risks to the outlook,” Kganyago said.
“The MPC will seek to analyze temporary price shocks and focus on second-round effects.”
The Reserve Bank kept the buyback rate at 3.5 percent with three MPC members voting in favor of maintaining the current level of interest rates.
He kept the loan rate at 7 percent.
The MPC, which has collectively cut rates 300 basis points since January, will have its final meeting of the year in November.
Kganyago said the bank now forecasts a gross domestic product (GDP) contraction of 8.2 percent in 2020, compared with the forecast contraction of 7.3 percent in July.
He said the country’s GDP was now projected to grow 3.9 percent in 2021 and 2.6 percent in 2022, adding there would be an 8.2 percent economic contraction in 2020, compared to the forecast. contraction of 7.3 percent in July.
North West Business School professor Raymond Parsons said the decision to leave the repurchase rate unchanged under current economic circumstances was disappointing, as the economic outlook was now even bleaker.
“Not cutting interest rates further now, therefore, is not a helpful or responsive decision,” Parsons said.
“Both global factors and the collapse of GDP growth in the second quarter had created the need and space for more support for monetary policy, albeit modest.
Kganyago said inflation was expected to remain contained below the midpoint of the target range for this year.
It said the general forecast for consumer price inflation was expected to average 3.3 percent this year, lower than previously forecast, and at 4 percent in 2021 and 4.4 percent by 2022.
Momentum Investments economist Sanisha Packirisamy said the central bank could consider increases in interest rates in the second half of 2021.
“We suspect that SARB is at the end of its cutting cycle,” Packirisamy said.
“The SARB highlighted ongoing fiscal concerns, hinting that further relaxation from here on was less likely unless, in our view, we suffered another setback in growth or experienced another sharp drop in inflation.”
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