Reserve Bank keeps rates on hold at 3.5%

South African Reserve Bank Governor Lesetja Kganyago announces a repo rate cut at central bank's head office on January 16, 2020 in Pretoria.
South African Reserve Bank Governor Lesetja Kganyago announces a repo rate cut at central bank's head office on January 16, 2020 in Pretoria.
Gallo Images/Business Day/Freddy Mavunda

Interests rates will be kept on hold at 3.5%, Reserve Bank Governor Lesetja Kganyago has announced. 

Kganyago was speaking at a briefing on Thursday after the bank's Monetary Policy Committee concluded its last meeting for the year.  

Economists had predicted a "close split" among members. According to Kganyago two members were in favour of a cut while three were not.

Inflation is expected to remain "well contained" over the medium term. The bank's Quarterly Projection Model indicates no further repo rate cuts in the near term, with increases being introduced in the latter part of 2021.

The MPC also revised the year's economic contraction projection to -8%, an improvement from the -8.2% projected at the last meeting. "Locally, further easing of lockdown restrictions has supported economic growth, with high frequency indicators continuing to show a pickup in economic activity during August and September," Kganyago said. During a question and answer session, he explained that there has been higher economic activity in manufacturing and mining, which is why "robust" performance is expected in the third quarter.

But Kganyago highlighted that lockdowns in Europe, important trading partners of South Africa, will affect trade and by extension growth in the fourth quarter. 

With ratings agencies scheduled to make ratings decisions this week, Kganyago pointed out that they may choose not to make announcements and wait. He said that it is difficult to factor in their decisions, they are treated as an "event risk" if they affect the market. He said in the bank's engagements with ratings agencies, it is apparent that they have no concerns with the its monetary policy stance.

The MPC has cut rates by 300 basis points this year.

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