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The Acccounting Lab > News  > SARB leaves repo rate unchanged

SARB leaves repo rate unchanged

SARB leaves repo rate unchanged

Nov 23 2017 15:21

Carin Smith

Cape Town – The monetary policy committee (MPC) of the SA Reserve Bank (SARB) has decided to leave the repo rate unchanged at 6.75%.

The prime lending rate, therefore, stays at 10.25%. The repo rate is the interest rate at which the SARB lends money to commercial banks.

SARB governor Lesetja Kganyago said the upcoming ANC leadership election meeting in December is likely to weigh on the rand.

Kganyago said of particular concern is the decline in the FNB/BER civil construction index. The employment outlook also remains worrisome. He also pointed to weak consumer confidence. International oil prices pose an upside risk. A petrol price increase is likely in December.

He also pointed to the impact a ratings downgrade could have on the exchange rate.

“Since the previous meeting of the Monetary Policy Committee upside risks to the inflation outlook have increased, mainly due to higher international oil prices and a weaker rand exchange rate,” Kganyago said.

He said the domestic growth outlook remains weak, continuing its deviation from the generally more favourable global pattern. Stronger world growth has contributed to a further increase in international oil prices, which could, in turn, provide a boost to global inflation.

Policy tightening

“This may increase the pace of monetary policy tightening in the advanced economies, with possible implications for capital flows to emerging markets,” he added.

In light of the high degree of uncertainty prevailing in the economy and the balance of risks, the MPC has decided that it would be prudent to maintain the current stance of monetary policy at this stage. Accordingly, the repurchase rate remains unchanged at 6.75% per annum.

“The QPM (projection model) generates an endogenous interest path that implies an increase in the repo rate of 75 basis points by the end of 2019. We need to stress that this does not mean an unconditional commitment to change policy rates in line with this path,” said Kganyago.

He said the forecasts and implied path are a broad guide to policy and not necessarily prescriptive.

“Depending on economic conditions, the MPC may choose to diverge from the suggested path and alternative paths could be generated that are still consistent with achieving the inflation target,” he said.

“Collective judgement therefore remains critical. As always, MPC members need to weigh the risks to the forecasts and assess the trade-offs. It is also the case that the implied path can change from meeting to meeting as the data and risks change.”

Split

At the previous MPC meeting Kganyago said the MPC was split on whether to lower or keep rates stable before the decision was made to leave the repo rate unchanged at 6.75% per annum.

At the previous meeting three MPC members preferred an unchanged stance and three members preferred a 25 basis point reduction.

“Given the heightened uncertainties in the economy, the MPC felt it would be appropriate to maintain the current monetary policy stance at this stage,” Kganyago said at the previous meeting.

Economists were largely surprised by the September decision by the MPC to keep interest rates unchanged. Before Kganyago made the announcement in September, there was a broad consensus among economists that the MPC would drop rates by 25 basis points.

In July this year the MPC decided to cut the repo rate by 25 basis points to 6.75% per annum. Kganyago said at the time that four MPC members preferred a reduction, while two members preferred an unchanged stance.

Earlier on Thursday, ahead of the latest MPC decision, Fin24 reported FNB’s senior economic analyst Jason Muscat as saying a SARB rate cut would be unlikely given the “significant event risk” of another credit rating downgrade by the end of this week.

In his view, news that inflation eased to 4.8% for October would not have had much influence on the MPC interest rate decision.

Inflation slowed from 5.1% reported in September, greater than market expectations. The rand subsequently strengthened as much as R13.87 to the greenback.

Besides Moody’s and S&P’s ratings reviews expected to be released on Friday, other risks to the currency include the elevated oil price, the ANC policy and elective conference and Eskom’s tariff application, said Muscat.

https://www.fin24.com/Economy/sarb-leaves-repo-rate-unchanged-20171123#cxrecs_s

Leoni