Economists react to unchanged repo rate decision

Lesetja Kganyago
Reading Time: 2 minutes

The Reserve Bank’s Monetary Policy Committee (MPC) has decided to leave interest rates unchanged at 6.5%. This despite expectation that it would cut rates in the face of much lower inflation rate. Thursday’s announcement was the last for year carrying with it lower economic growth forecasts for the year.

But some economists said there was room for the bank to lower the repo rate because inflation is at its lowest rate in eight years. This after Statistics South Africa announced that the headline consumer price index (CPI) fell to 3.7% in October, down from 4.1% the month before.

Economist Matlhodi Matsei says the Reserve Bank’s Monetary Policy‘s decision to leave the repo rate unchanged at 6,5% comes as no surprise.

Matsei was responding after the bank’s Governor Lesetja Kganyago briefed the media in Pretoria.

“It’s both a surprise and not a surprise for me from a few aspects. So our expectations were for a cut. If we look at where SARB is with their repo rate at the moment and their inflation forecast is relative to ours… We were essentially saying that we expect a cut because if you look at the real repo rate we felt that from our perspective it was high enough to accommodate this risk premium that the governor keeps talking about.”

Another economist Owen Nkomo says unions won’t be too happy about the Committee’s decision to leave the repo rate unchanged. Nkomo says there may be a storm ahead.

“We have a bigger conversation in terms of driving the reduction in the fiscal deficit and the budget deficit in the country and I think that one could create room for interest rates to be reduced but right now if things go worse, think about Eskom and all its challenges, downgrades that are pending and interest rates going up our fiscal metrics is going to worsen it is already difficult for us to justify any expectation that things are going to be managed any time soon given the mid term budget statement.”

Meanwhile, the prime lending rate also remains unchanged at 10%.

Kganyago says longer term weakness in most sectors remains a concern while growth for 2019 has also been revised down to 0,5%.