The South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) has kept the interest rate unchanged at 8.25% in its decision on Thursday. This means the prime lending rate will remain unchanged at 11.75%.
This is the seventh consecutive meeting by the MPC where the interest rate was kept at the same figure.
The Reserve Bank Governor, Lesetja Kganyago said this was not a unanimous decision amongst the members of the MPC.
Kganyago said that four members preferred an unchanged stance and two preferred a reduction of 25 basis points.
The MPC members agreed that restrictive policy remains appropriate to stabilise inflation at 4.5%.
Reason for no change
The governor said that the battle against inflation is not yet won, and for this reason, global interest rates remain elevated.
South Africa’s economic performance in the first half of the year was disappointing, he added.
“The economy contracted slightly in the first quarter, by 0.1%, and recent data, including last week’s mining and manufacturing numbers, have caused us to trim our second-quarter growth estimate modestly, to 0.6%,” Kganyago explained.
He is hopeful that over the medium term, SA can expect somewhat faster growth, supported by a more reliable electricity supply and improving logistics.
“Our revised growth projections nonetheless remain below longer-run historical averages, of about 2%. The risks to this forecast are assessed as broadly balanced, with ample scope for structural reforms to lift growth further over the medium term,” the governor said.
“On the inflation front, the most recent headline print, for May, was 5.2%, unchanged from April and still in the top half of our target range. The outlook, however, has improved somewhat. Headline consumer price inflation for this year is now projected at 4.9%, compared to 5.1% at the previous meeting.”
Kganyago said that over the next few quarters, headline is expected to dip below the 4.5% midpoint, mainly because of fuel and food prices.
He added that this outlook is supported by the stronger rand.
“The implied starting point for our forecast is now at R18.35 to the dollar. Over the medium term, we continue to see inflation stabilising at 4.5%, with core inflation remaining close to this midpoint objective throughout,” Kganyago said.
Economists
The MPC decision was in line with several economists' expectations.
Earlier in the week Lara Hodes, an economist at Investec said in a financial note that the Sarb would keep rates on hold this week at 8.25%.
“We continue to pencil in a start to the easing cycle in November, although the risk is that the South African interest rate cutting cycle only begins in 2025,” she said.
The Bank of America South Africa Watch also noted earlier in the week that the MPC would keep the repo rate fixed and there will be no cut.
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