The South African Reserve Bank has decided to leave the repo rate unchanged at 3.5 percent as inflation fell to a 16-year low in 2020. Picture: Bongani Shilubane/ African News Agency (ANA)
The South African Reserve Bank has decided to leave the repo rate unchanged at 3.5 percent as inflation fell to a 16-year low in 2020. Picture: Bongani Shilubane/ African News Agency (ANA)

SARB leaves repo rate unchanged at 3.5% as inflation fell in 2020

By Siphelele Dludla Time of article published Jan 21, 2021

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JOHANNESBURG - The South African Reserve Bank (SARB) has decided to leave the repurchase rate (repo rate) unchanged at 3.5 percent as inflation fell to a 16-year low in 2020.

This was despite economists predicting a 25 basis points cut in interest rates as inflation remained at the lower end of the bank’s target range of 3-6 percent due to slowing demand.

Headline consumer price inflation averaged 3.3 percent in 2020, in line with the bank's expectations, and was the lowest rate since 2004.

In its first rates decision for the year, Sarb’s Monetary Policy Committee (MPC) decided to hold interest rates in a split decision as two members preferred a 25 basis point cut while three preferred to hold rates at the current level.

Sarb Governor Lesetja Kganyago today said that the overall risks to the inflation outlook appeared to be balanced in the near and medium term.

Kganyago said though global producer price inflation and oil prices had risen, a more appreciated nominal exchange rate expected in recent months would moderate some inflationary pressure.

“Expectations of future inflation appear more stable after sustained moderation last year, although those of households continue to moderate from quite high levels,” Kganyago said.

“The Committee notes that the slow economic recovery will help keep inflation below the midpoint of the target range for this year and next.

“Unless risks outlined earlier materialise, inflation is expected to be well contained in 2021, before rising to around the midpoint in 2022 and 2023.”

The bank’s consumer inflation forecast for 2021 is slightly higher at 4 percent, up from 3.9 percent, and is 4.5 percent up from 4.4 percent for 2022.

Similarly, core inflation forecasts for 2021 and 2022 are unchanged at 3.4 percent and 4 percent, respectively

Kganyago said the implied policy rate path of the Quarterly Projection Model (QPM) indicated two increases of 25 basis points in the second and third quarters of 2021.

BUSINESS REPORT ONLINE

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