Thursday, 23 September 2021 16:40

SA Reserve Bank keeps repo rate unchanged at 3.5%.

By Lehlohonolo Lehana.

The South African Reserve Bank’s Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 3.5% per annum.

In a statement on Thursday afternoon (23 September) Reserve Bank governor Lesetja Kganyago said that the decision follows largely unchanged inflation expectations and even with continued upside risks, the committee expects inflation to stay close to the mid-point over the forecast period.

"Against this backdrop, the MPC decided to keep rates unchanged at 3.5% per annum. The decision was unanimous," he said.

"The implied policy rate path of the Quarterly Projection Model (QPM) indicates an increase of 25 basis points in the fourth quarter of 2021 and further increases in each quarter of 2022 and 2023."

Kganyago said that these repurchase rate levels reflect a highly accommodative policy stance through the end of the forecast, keeping financial conditions supportive of credit demand as the economy continues to recover.

"The bank has ensured adequate liquidity in domestic markets and will continue to closely monitor funding markets for stress. In addition, regulatory relief provided to banks continues to support lending to households and firms."

Better anchored expectations of future inflation could keep interest rates lower for longer, and can be realised by achieving a stable public debt level, increasing the supply of energy, moderating administered price inflation and keeping wage inflation low into the recovery, Kganyago said.

"Such steps will enhance the effectiveness of monetary policy and its transmission to the broader economy. Economic and financial conditions are expected to remain volatile for the foreseeable future.

"In this uncertain environment, policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook."

Kganyago said the MPC will seek to look through temporary price shocks and focus on second-round effects.

"As usual, the repo rate projection from the QPM remains a broad policy guide, changing from meeting to meeting in response to new data and risks," he said.

GDP is expected to grow by 1.7% in 2022 - down from 2.3% estimated previously - and by 1.8% in 2023, down from 2.4% estimated previously.