[ad_1]
The Monetary Policy Committee of the Reserve Bank of South Africa voted three to two on Thursday (November 19) to keep interest rates on hold.
This leaves the total rate cut in 2020 at 300 points, with the buyback rate at 3.5% and the prime rate at 10%. The prime and base interest rate for mortgage loans remains at a historic low of 7.0%.
Reserve Bank Governor Lesetja Kganayo said that while the easing of the blockade in South Africa has supported economic growth, the risk of future outbreaks persists and the return to blockade of many other world economies has kept global growth under pressure. .
Risks remain to the downside and economic and financial conditions are expected to remain volatile for the foreseeable future, he said.
“In this highly uncertain environment, policy decisions will remain data-driven and sensitive to the balance of risks to the outlook.”
Kganyago said the easing of lockdown restrictions in South Africa has supported economic growth, with high-frequency indicators continuing to show a rebound in economic activity during August and September.
As such, growth in the third quarter of the year is expected to be 50.3% quarter-on-quarter (seasonally adjusted, annualized). Annual growth is revised to an 8% decline from an 8.2% decline forecast in September.
Now GDP is expected to grow 3.5% in 2021 and 2.4% in 2022.
Better global economic and financial conditions caused the rand to appreciate 6.9% since the September meeting. However, the rand has depreciated 8.7% against the dollar since January and remains below its long-term estimated equilibrium value.
The implicit starting point for the rand forecast is R16.50 per US dollar, compared with R16.90 at the time of the previous meeting.
In this context, the MPC decided to keep rates unchanged at 3.5% per annum. Two committee members preferred a 25 basis point cut and three preferred to keep rates at the current level.
Covid-19 Warning
Kganyago said that since the September Monetary Policy Committee meeting, it has become clear that Covid-19 infections will occur in waves of greater and lesser intensity, caused in large part by pandemic fatigue and failures in security protocols.
“The virus is spreading rapidly in parts of North America and Europe and hot spots have emerged in parts of South Africa.
“While we have learned how to better manage transmission risks and lock design, these waves of infection will continue for some time,” he said.
The governor said the new spread of the virus and the re-imposed lockdowns in other countries will extend the time needed for economies to return to pre-pandemic activity levels.
He also cautioned that despite the welcome development in November of successful vaccine trials, global vaccine distribution is likely to be slow, resulting in a modest pace of global economic growth in 2021.
Expected
The market widely expected retention of rates, with 12 of 14 economists (86%) surveyed by Finder anticipating retention. It is also in line with the MPC’s previous quarterly projection model, which suggested no further cuts would be made in the short term, and two rate hikes in the third and fourth quarters of 2021.
University of the Free State Senior Professor of Banking and Finance Johan Coetzee said that as an emerging economy, it is important that South Africa has a higher interest rate differential than the world’s major economies.
“This, at least to some extent, will provide a buffer for volatile movements in the exchange rate.”
Read: Mboweni on the Nationalization of the Reserve Bank and the cost to South Africa
[ad_2]
