The Monetary Policy Committee (MPC) statement read out by South African Reserve Bank (SARB) governor Lesetja Kganyago was dovish in tone, suggesting an interest rate cut was possible — but not right now.

The governor ended Thursday’s press conference by wishing everyone a Merry Christmas — it was the last MPC meeting of 2020 — but there was no parting gift in the form of a rate cut. Still, the SARB has slashed its key lending rate by 300 basis points so far this year, to 3.5%, so the governor could argue that he has been no Grinch and Santa came early this year. In fact, his first appearance was near Easter.

While the MPC held rates, it was hardly in a hawkish mode:

“The overall risks to the inflation outlook appear to be to the downside in the near term and balanced over the medium term. Global producer price inflation and oil prices remain low. Local food price inflation is expected to remain contained,” it said.

Inflation is at the bottom of its 3% to 6% target range and it was pointedly noted that “there are no demand side pressures evident”. With almost half of South Africa’s working-age population unemployed, that is, sadly, to be expected.

The SARB did revise its growth forecasts for the better, which may also explain why it held rates steady. After taking a chainsaw to the repo rate this year, there is not much more it can do to stimulate growth. That will require the structural reforms the government has been slow to undertake.

“The bank’s forecast of third-quarter GDP growth has been revised up to 50.3% quarter on quarter, seasonally adjusted and annualised,” the statement said. As a result, it now sees a slightly smaller contraction for all of 2020 of 8% rather than the 8.2% estimate it gave in September. Loads of data pointed to a massive Q3 rebound.

But that comes after the Q2 collapse, when the economy shrank by just over 50% on a seasonally adjusted and annualised basis. If your GDP adds up to, say, R1 trillion and it contracts 50%, it leaves you at R500-billion. If you add 50% to that, you reach R750-billion, meaning there is still a lot of lost ground to recover.

This is why the MPC statement said: “Getting back to pre-pandemic output levels … will take time. Sharply lower investment this year by both public and private sectors will weigh on growth prospects in coming years. GDP is now expected to grow by 3.5% in 2021 and by 2.4% in 2022.” Some bright spots were highlighted.

“South Africa’s terms of trade remain robust. Commodity export prices are high, while oil prices remain generally low,” the statement said.

This is not a bad time to be the world’s top producer of platinum group metals. Oil producers on the other hand are staring at the bottom of the barrel.

That in turn has been supportive of the rand, which has gained about 7% against the dollar since the September MPC meeting, cutting its losses in the year to date to about 9%. Political uncertainty in the world’s largest banana republic — triggered by Donald Trump’s refusal to concede an election he lost two weeks ago — might further undermine the dollar and support the rand.

Is an interest rate cut on the cards when the MPC has its next scheduled meeting in January?

“The implied policy rate path of the Quarterly Projection Model indicates no further repo rate cuts in the near term, and two increases of 25 basis points in the third and fourth quarters of 2021,” the SARB said. That would still mean relatively low borrowing costs for South African consumers — those fortunate enough to be in a position to access credit. DM/BM