Interest rates unchanged, as Reserve Bank flags impact of unrest on recovery

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Reserve Bank Governor Lesetja Kganyago.
Reserve Bank Governor Lesetja Kganyago.
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As expected, the SA Reserve Bank's (SARB) Monetary Committee (MPC) decided to keep the repo rate unchanged at 3.5% at its meeting on Thursday.

The prime rate remains at 7%.

Reserve Bank Governor Lesetja Kganyago said the MPC's decision was unanimous. The GDP growth forecast could not be raised due to the recent unrest, he added.

Downside risks to the economy included the longer-than-expected lockdown, limited energy supply, policy uncertainty, and slow vaccine rollout – with the latter having been exacerbated by the impact of the recent riots and looting, said Kganyago.

Local interest rates were cut by three percentage points last year, and most economists expect that rates would be hiked by the start of next year.

In May, inflation spiked to above 5% - a 30-month high - which along with stronger-than-expected economic growth in the first quarter, created some expectations that interest rates may head higher sooner than expected.

But the economic damage caused by the violent unrest in KwaZulu-Natal and Gauteng, along with a return to more stringent lockdown measures and the rampant third Covid-19 wave in Gauteng, have tempered those expectations.

Kganyago said the direct and indirect cost of recent events would likely slow SA's economic recovery. Even though some sectors have largely recovered to pre-pandemic levels, production remains muted, he said.

After the announcement, the rand was trading slightly weaker at R14.60/$.


 

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