SA Reserve Bank shifts to 'wait and see' after Covid-19 response

0:00
play article
Subscribers can listen to this article
The central bank last month held the repo rate at 3.5% after 300 basis points of reductions this year. Photographer: Waldo Swiegers/Bloomberg
The central bank last month held the repo rate at 3.5% after 300 basis points of reductions this year. Photographer: Waldo Swiegers/Bloomberg
  • The SA Reserve Bank expects the repo rate to remain low after aggressive monetary-policy easing to counter the economic damage due to the coronavirus pandemic.
  • The central bank last month held the repo rate at 3.5% after 300 basis points of reductions this year.
  • Policy is again more data dependent with the rate either cut by smaller increments or left unchanged in the second half of the year.


The SA Reserve Bank has shifted to a "wait and see" strategy as it expects the repo rate to remain low after aggressive monetary-policy easing in the first half of the year to counter the economic damage wrought by the coronavirus pandemic.

"While the initial Covid-19 shock clearly justified a forceful response", policy is once again more data dependent with the rate either cut by smaller increments or left unchanged in the second half of the year, the SARB said Tuesday in its six-monthly Monetary Policy Review.

The central bank last month held the repo rate at 3.5% after 300 basis points of reductions this year. With the key rate at the lowest level since it was introduced in 1998 and inflation forecast to have bottomed out, it's likely to move "somewhat higher" in future, the central bank said.

The normalisation of the repurchase rate is "likely to be gradual, with rates staying at low levels for an extended period," it said. While the monetary policy committee hasn't committed to an interest-rate trajectory, the bank's forecasting model suggests an upward movement will take place toward the end of 2021. The model shows the repo rate at 4.03% by the end of that year.

READ: Plan to revive economy must address constraints or fail, Kganyago says

The central bank has been criticised by politicians and labour-union officials who say it should be doing more to create jobs and support an economy that it sees contracting by 8.2% this year. However, it maintains that monetary policy alone can't deliver prosperity.

"Monetary policy is providing significant support, but low rates would provide even more stimulus if there were greater certainty about the economy's medium-term direction," it said.

Even with a rebound expected in the third quarter, output will only recover to pre-virus levels by mid 2023, according to central bank forecasts. It could recover faster if constraints including electricity shortages, record-high government debt and weak confidence are addressed, the bank said.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
ZAR/USD
16.22
(+0.68)
ZAR/GBP
21.02
(+0.61)
ZAR/EUR
18.90
(+1.04)
ZAR/AUD
11.40
(+0.89)
ZAR/JPY
0.16
(+0.87)
Gold
1877.12
(+0.49)
Silver
23.60
(+1.43)
Platinum
846.00
(-0.29)
Brent Crude
38.07
(-3.48)
Palladium
2216.00
(+0.70)
All Share
51684.70
(-0.41)
Top 40
47472.92
(-0.22)
Financial 15
9459.76
(-3.04)
Industrial 25
73405.64
(+1.00)
Resource 10
47245.91
(-1.21)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, and I've gotten it.
24% - 150 votes
No, I did not.
50% - 319 votes
My landlord refused
26% - 166 votes
Vote