The decision to leave the repo rate unchanged at 3.5% was a unanimous one by the SA Reserve Bank’s (Sarb’s) five-member Monetary Policy Committee (MPC), a departure from recent meetings in which three have typically voted to hold, while two have favoured a rate cut. 

That is a signal that the bottom of the cutting cycle may have been reached last year when the MPC slashed the repo rate by 300 basis points, bringing the prime lending rate for consumers to 7%. But that does not mean a hike is on the horizon. 

“It would be a mistake to read unanimity on the MPC as a more hawkish stance. Little room for further easing does not mean imminent tightening,” said Razia Khan, chief Africa economist at Standard Chartered Bank in London. So, for the moment, it is steady as she goes. 

Price pressures remain muted with inflation in February running at 2.9%, below the SARB’s mandated 3 to 6% target range. But Sarb has adjusted its forecast for headline consumer inflation to 4.3% for 2021 from 4%, and the MPC is always mindful of second-round price effects down the road. 

The MPC statement noted that: “Oil prices have increased sharply this year and are expected to remain at these levels over the forecast horizon. Electricity and other administered prices remain upside risks to the inflation trajectory.”

And frankly, rates are the lowest they have been in decades, and so are still seen offering support to a fragile economy. 

“Monetary policy continues to be accommodative, keeping financial conditions supportive of credit demand as the economy recovers from the pandemic and associated lockdowns,” said the MPC statement, read as usual by Sarb governor Lesetja Kganyago.

Still, the immediate economic outlook is bleak in the wake of the 7% economic contraction that befell South Africa in 2020. The central bank now forecasts a slight 0.2% contraction in Q1 2021, a significant downward revision from the growth of 1% predicted at the MPC’s January meeting. 

Sarb flagged load shedding and the Covid-19 pandemic as major threats to economic growth. 

“Since the January meeting of the MPC, a second wave of Covid-19 infections has come and gone, with lockdown restrictions further reduced. Until vaccination is widespread and populations develop sufficient immunity to curb virus transmission, it is expected that these waves of infection will continue,” the statement said. 

But going beyond this quarter, there is a hint of optimism, and Sarb revised its GDP forecast for the year upward to 3.8% from 3.6% at the previous MPC meeting, based on expectations of “stronger quarterly outcomes for the rest of this year”.

FNB CEO Jacques Celliers echoed the cautious optimism in the economic recovery.

“Against the backdrop of easing lockdown restrictions and a reassuring national Budget, Sarb’s decision provides further impetus for more sustainable economic activity. In our business, we’ve also observed increased economic activity among our retail and commercial customers. 

“We expect the positive economic trajectory to gather pace in the months ahead, subject to the possibility of a third wave of Covid-19 and its impact on the economy,” he said in a statement. 

We’ll see in two months’ time where things stand when the MPC is scheduled to meet again. In these turbulent times, a lot can and will unfold between now and then. DM/BM