Reserve Bank keeps rates on hold, revises growth higher

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SA Reserve Bank Governor Lesetja Kganyago.
SA Reserve Bank Governor Lesetja Kganyago.
Gallo Images/Freddy Mavunda
  • The SA Reserve Bank has kept interest rates on hold at 3.5%.
  • However, the bank has upwardly revised the growth outlook from 4.2% to 5.3%.
  • It expects the unrest in July to weigh down third quarter growth.


The SA Reserve Bank has kept the repo rate unchanged at 3.5%, in line with economists' expectations.

During a media briefing on Thursday, Reserve Bank Governor Lesetja Kganyago said that all members of the Monetary Policy Committee were in favour of keeping the repo rate on hold. The prime rate also remains unchanged at 7%. 

The committee expects inflation to remain close to the midpoint, or 4.5% of the 3% to 6% target range.

According to the central bank, core inflation is revised higher to 3% in 2021, from 2.9% estimated previously. "We expect it (core inflation) to be contained this year and next year. Even in the outer year in 2023, when it rises - to 4.3% - it will still be remaining below the midpoint of the inflation target range. Which then tells us that inflationary pressures are contained," said Kganyago.

Headline consumer price inflation for 2021 has been revised slightly higher to 4.4%, up from 4.3%.

Among the risks to short-term inflation outlook are global producer price and food price increases, oil prices, as well as electricity and other administrative prices. Long-term risks include a weaker currency, higher domestic import tariffs, and escalating wage demands. 

The bank revised the growth outlook from 4.2% to 5.3%. This is despite the much larger negative effect on output than was previously estimated from the July unrest, explained Kganyago.

"Our revised estimate for third quarter economic growth is -1.2%, compared to the previous -0.5%. Output in the manufacturing sector fell by 8.0% in July alone. Mining was up 4.1%, while land freight transport fell by 5.0% and retail output was down by 11.2%," he noted.

Ahead of the SA Reserve Bank briefing, the Bureau for Economic Research had expected the growth outlook to be raised above 5%.

However, the July unrest is expect to weigh on the economy. "The July events and the pandemic are likely to have lasting effects on investor confidence and job creation, impeding recovery in labour-intensive sectors hardest hit by the lockdowns," Kganyago 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.

Kganyago noted that the risks to doemstic growth over the medium term are balanced. "High export prices are expected to fade, while very weak job creation will slow household consumption. Investment will remain constrained by the still limited energy supply and ongoing policy uncertainty," he said.

However, a faster vaccine rollout presents upside risks to the growth outlook, he added.

During a question and answer session, Reserve Bank deputy governor Rashad Cassim explained that the upward revision to the 2021 GDP is linked to the robustness of the economy, for the short-to-medium term being better than expected.

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