Reserve Bank governor Lesetja Kganyago at the monetary policy committee press conference. Picture: FREDDY MAVUNDA
Reserve Bank governor Lesetja Kganyago at the monetary policy committee press conference. Picture: FREDDY MAVUNDA

The Reserve Bank’s monetary policy committee (MPC) has kept interest rates unchanged in line with expectations.

Interest rates remain at 6.75%. All 17 economists polled by Bloomberg expected the repo rate to remain unchanged as the Bank’s MPC contended with a weak economy and lower inflation.

This will come as a relief to cash-strapped consumers who face further fuel-price increases and slightly higher debt service costs, which have dented confidence.

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“Since the previous meeting of the MPC, global growth concerns have increased, with particular weakness visible in some of our trading partners. Domestically, electricity constraints, combined with weakness in business and consumer confidence, weigh on the forecast,” governor Lesetja Kganyago said.

“While inflation continues to show near-term downside surprises, the medium-term outlook is impacted by higher energy tariffs and rising food and fuel prices.” 

Inflation is expected to moderate this year but the Bank has made it clear it would prefer inflation anchored at the midpoint of the 3% to 6% target range. In February, inflation was below the midpoint of the range at 4.1%.

“Higher food, fuel and electricity prices are expected to lift inflation over the medium term. However, this is expected to be offset by lower core inflation as unit labour costs and inflation expectations moderate,” Kganyago said.

Growth forecasts were revised down for the next three years on the global slowdown, declines in business confidence, power cuts and growing pressure on household disposable income. Growth is now expected to be 1.3% for 2019 and 1.8% in 2020.

“A further escalation of trade tensions, rising geopolitical risks, including the possibility of a no-deal Brexit, and renewed tightening of financial conditions could further weaken growth in an environment with limited policy space,” Kganyago said.

The Bank’s tone followed more dovish tones from the US Federal Reserve and the European Central Bank (ECB).

“Emerging-market currencies have generally benefited from indications of continued accommodative monetary policy in advanced economies and low market volatility,” he said. “The rand has been affected by idiosyncratic factors, such as domestic growth prospects, political developments and policy setting.,” 

The decision comes a day before Moody’s Investors Service is expected to make its pronouncement on SA’s credit ratings, which analysts, who expect no change in the rating, have argued helped stay the MPC’s hand.

In November, the MPC hiked interest rates for the first time in two years, by 25 basis points, in response to long-term risks to inflation, including tighter financial conditions such as interest-rate increases in the US; a weaker exchange rate; a high wage rate; oil prices; and rising electricity and water tariffs.

The Bank’s inflation forecasts are now:

  • 2019: 4.8%, unchanged from January
  • 2020: 5.3%, unchanged from January
  • 2021: 4.7% from 4.8% in January

Inflation is now expected to peak at 5.7% in the first quarter of 2020.

Its economic-growth forecasts have been adjusted to:

  • 2019: 1.3% from 1.7% in January
  • 2020: 1.8% from 2% in January
  • 2021: 2.0% from 2.2% in January

Correction: March 28 2019
An earlier version of this article erroneously stated that inflation is expected to peak at 4.9% in the third quarter of 2019. This has been corrected to reflect that it is expected to peak at 5.7% in the first quarter of 2020. Business Day regrets the error.