SA ReserveBank has decided to keep interest rates unchanged at 3.5% for the repo rate.


AND SO, a traumatic year ends not with a bang but with a whimper on the interest rate front as the Monetary Policy Committee of the Reserve Bank opts to keep rates on hold, meaning the total cut for the year is 275 basis points and keeping the repo rate at 3, 5 %.  

With such a buffer, there is room for a full 100 basis points cut, if only to boost a flagging growth and confidence.

But you are unlikely to get that from the SA Reserve Bank Governor Lesetja Kganyago and his ‘Conservative Crew’.

The MPC showed a much better handle on the coronavirus than they do on the country’s interest rates.

“Since the September meeting of the Monetary Policy Committee (MPC), it has become clear that Covid-19 infections will occur in waves of higher and lower intensity, caused in large part by pandemic fatigue and lapses in safety protocols.”

The committee said in the opening line of its statement, noting how the virus is raging in the United Sates and Europe, with hotspots emerging in parts of South Africa.

It is interesting how the committee has swung over the course of the year.

The committee was unanimous in its decision to cut over March, April and May meeting where cuts totalled 250 basis points.

At the July meeting they were split 3 to 2 in favour of a 25 basis while for the last two, the Hawks prevailed by 3 to 2 for keeping rates on hold whlle the losing side had advocated for a 25 basis points.

Kganyago says he cast the deciding vote in a committee that was evenly split at Thursday’s meeting.

This shows the need for more voices at the committee to return it to its original seven members from its current five or a rotating guest seat to allow for an external member to be invited to selected meetings.

The most significant change that has occurred over the last quarter is the growth outlook.

The Bank now expects the economy to shrink by 8% compared to 8.2% while a leading banks forecast has been revised from growth of 9.2 % to 8.2 %.

This improvement is due to a better than expected third quarter GDP recovery.

“Getting back to pre-pandemic output levels, however, will take time,” the MPC said in its statement.

“Sharply lower investment this year by both public and private sectors will weigh on growth prospects in coming years. GDP is now expected to grow by 3.5% in 2021 and by 2.4% in 2022.”

The bank maintained its view that inflation is not a threat in the short term.

“The Bank’s headline consumer price inflation forecast averages 3.2% in 2020 and is slightly lower than previously forecast at 3.9% in 2021 and remains at 4.4% in 2022. The forecast for core inflation is lower at 3.3% in 2020, at 3.4% in 2021, and remains stable at 4.0% in 2022,” the bank said.

This begs the question: if inflation is not a threat, then why not cut rates to boost growth and employment?

There is no such luck with this lot.

In the most glib, trite, bland and technical statement they put out this year, Kganyago dashed any hopes of a cut.

“The implied policy rate path of the Quarterly Projection Model (QPM) indicates no further repo rate cuts in the near term, and two increases of 25 basis points in the third and fourth quarters of 2021,” the MPC said.  

Kganyago then threw in his now favourite line, placing he ball to government’s court to reignite growth.

“Monetary policy however cannot on its own improve the potential growth rate of the economy or reduce fiscal risks,” the line goes.

These should be addressed by implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation.

Kganyago’s parting shot for the year should have been a 100 basis point cut to give a  little festive cheer, be told to spend wisely and continue to practice heath protocols.

Instead, we were told that at the end of a traumatic year where livelihoods were decimated, the Bank has done all it could, and we are pretty much on our own.

Kganyago really is ‘The Grinch’ who stole Christmas.



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