Reserve Bank keeps rates on hold at record lows
Announcement comes as SA reels from a new wave of Covid-19 infections and harder lockdown restrictions
The SA Reserve Bank’s monetary policy committee (MPC) remained cautious at its first meeting of 2021 on Thursday, holding the repo rates steady at a record low of 3.5%.
The decision, which was again decided on a 3-2 split by the MPC, was in line with market expectations. Two members voted for a 25 basis-point cut.
BusinessLIVE reported that the announcement comes as SA reels from a new wave of Covid-19 infections and after harder lockdown restrictions were introduced in late December, including a renewed ban on alcohol sales. This has cast a pall over the prospects for a more robust economic recovery heading into 2021.
At the same time, recent economic data suggests that the partial economic recovery from the worst of SA’s hard lockdown began to cool off in the last quarter of 2020 — even before the new restrictions were introduced.
This had raised hopes that MPC members would contemplate a 25 basis-point cut to provide marginal relief to consumers and business in the face of the government’s inability to inject any further support into the economy.
The Bank revised its growth forecasts and is now expecting GDP to 3.6% in 2021 and 2.4% in 2022 compared to November’s forecasts of 3.5% in 2021 and 2.4% in 2022.
After inflation averaged just 3.3% in 2020, the lowest level since 2004 as the pandemic weighed on demand, the Bank now sees inflation averaging 4% in 2021 and 4.4% in 2022 compared to its November forecasts of 3.9% and 4.4%, respectively.
The Bank’s decision comes after US President Joe Biden’s peaceful inauguration on Wednesday, which helped buoy market sentiment on his promise of a $1.9-trillion stimulus package to get the US economy going again.
The rand gave back some of its gains of the day following the announcement and at 3.20pm was 0.64% firmer at R14.80/$. It earlier reached a best level of R14.75.
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