SA Reserve Bank likely to keep interest rates on hold in September based on moderate inflation and strong rand The South
Posted: Wed Mar 30, 2022 3:43 pm
SA Reserve Bank likely to keep interest rates on hold in
September based on moderate inflation and strong rand
The South African Reserve Bank will almost certainly keep
interest rates unchanged when its Monetary Policy Committee meets
on 23 September. The economy this quarter is widely believed to be
contracting, unemployment is sky-high, inflation is moderate and
the rand is strong.
The South African Reserve Bank (SARB) will almost certainly keep
interest rates unchanged when its Monetary Policy Committee (MPC)
meets on 23 September. The economy this quarter is widely believed
to be contracting, unemployment is sky-high, inflation is moderate
and the rand is strong.
“The SARB needs to avoid interest rate hikes this year, even if
monetary policy is extremely accommodative, as the economy is still
fragile,” Investec chief economist Annabel Bishop was quoted as
saying by Finder. com, a global financial comparison platform.
A panel of economists surveyed by Finder.com found that 97%
expected the SARB to hold its key repo rate unmoved at 3.5%, which
translates into a prime commercial rate of 7.0%. The repo rate is
at an historic low and prime is at its lowest in more than five
decades after the central bank slashed rates by 300 basis points
last year, in response to the economic collapse triggered by the
lockdowns, domestic and global, to contain the Covid-19 pandemic’s
lethal march.
Analysts widely expect the next move to be up, but the timing
remains up in the air. Some economists think the SARB’s MPC should
hold off as long as possible, given underlying economic
weaknesses.
“Even next year interest rate hikes should be held off as long as
possible, hopefully until 2023,” said Bishop. The reasons to hold
at the moment are many. The economy only expanded 1.2% in the
second quarter (Q2) – which may have been an overstatement because
June’s mining data was a thumb-suck on the high side owing to the
Department of Mineral Resources and Energy’s tardy delivery of the
data to Statistics South Africa. Output remains well below
pre-pandemic levels after 2020’s massive 7.0% economic
contraction.
And in a significant setback, the economy is probably contracting
this quarter, not least because of the wave of looting and violent
unrest in July that was unleashed after the jailing of former
president Jacob Zuma.
At the last MPC in July, the SARB kept its 2021 GDP growth forecast
unchanged at 4.2%, but Governor Lesetja Kganyago said it had
planned to revise it higher – until the looting spree erupted. As
the costs of the mayhem trickle in with July economic data
releases, it will be of more than passing interest to see what the
central bank’s growth forecast for the year is now when the MPC
statement is unveiled on 23 September.
The latest indicator showed that retail trade sales in July fell
11.1% month-on-month from June, the biggest monthly fall since the
sector cratered in April last year. That gives a clear sense of the
economic damage wrought by the outbreak of lawlessness, which
killed more than 300 people.
Other datasets that will have the MPC’s full attention include the
Q2 employment figures, which showed the jobless rate hit a record
high of 34.4%, or 44.4% if discouraged job seekers are included.
One imagines the Q3 numbers will be even worse, which will signal
that poverty, hunger and inequality are all on the rise, further
undermining an already frayed social fabric.
Small wonder that inflation pressures remain moderate. In July, CPI
slowed to 4.6% – the middle of the SARB’s 3% to 6% target range –
from 4.9% in June and 5.2% in May.
To top it all off, the rand remains resilient, underpinned by
record current account and trade surpluses, which are largely the
product of red-hot commodity prices.
Against this backdrop, some may ask why the SARB is not cutting
again.
The SARB needs to avoid interest rate hikes this year, even if
monetary policy is extremely accommodative, as the economy is still
fragile.
Question - Given the importance of the SARB on the economy of
South Africa, you are required to write an essay which depicts the
main objectives associated with the SARB in general as well as the
objectives of monetary policy set by the reserve bank. In addition,
discuss the objectives of a government for setting financial
regulations.
September based on moderate inflation and strong rand
The South African Reserve Bank will almost certainly keep
interest rates unchanged when its Monetary Policy Committee meets
on 23 September. The economy this quarter is widely believed to be
contracting, unemployment is sky-high, inflation is moderate and
the rand is strong.
The South African Reserve Bank (SARB) will almost certainly keep
interest rates unchanged when its Monetary Policy Committee (MPC)
meets on 23 September. The economy this quarter is widely believed
to be contracting, unemployment is sky-high, inflation is moderate
and the rand is strong.
“The SARB needs to avoid interest rate hikes this year, even if
monetary policy is extremely accommodative, as the economy is still
fragile,” Investec chief economist Annabel Bishop was quoted as
saying by Finder. com, a global financial comparison platform.
A panel of economists surveyed by Finder.com found that 97%
expected the SARB to hold its key repo rate unmoved at 3.5%, which
translates into a prime commercial rate of 7.0%. The repo rate is
at an historic low and prime is at its lowest in more than five
decades after the central bank slashed rates by 300 basis points
last year, in response to the economic collapse triggered by the
lockdowns, domestic and global, to contain the Covid-19 pandemic’s
lethal march.
Analysts widely expect the next move to be up, but the timing
remains up in the air. Some economists think the SARB’s MPC should
hold off as long as possible, given underlying economic
weaknesses.
“Even next year interest rate hikes should be held off as long as
possible, hopefully until 2023,” said Bishop. The reasons to hold
at the moment are many. The economy only expanded 1.2% in the
second quarter (Q2) – which may have been an overstatement because
June’s mining data was a thumb-suck on the high side owing to the
Department of Mineral Resources and Energy’s tardy delivery of the
data to Statistics South Africa. Output remains well below
pre-pandemic levels after 2020’s massive 7.0% economic
contraction.
And in a significant setback, the economy is probably contracting
this quarter, not least because of the wave of looting and violent
unrest in July that was unleashed after the jailing of former
president Jacob Zuma.
At the last MPC in July, the SARB kept its 2021 GDP growth forecast
unchanged at 4.2%, but Governor Lesetja Kganyago said it had
planned to revise it higher – until the looting spree erupted. As
the costs of the mayhem trickle in with July economic data
releases, it will be of more than passing interest to see what the
central bank’s growth forecast for the year is now when the MPC
statement is unveiled on 23 September.
The latest indicator showed that retail trade sales in July fell
11.1% month-on-month from June, the biggest monthly fall since the
sector cratered in April last year. That gives a clear sense of the
economic damage wrought by the outbreak of lawlessness, which
killed more than 300 people.
Other datasets that will have the MPC’s full attention include the
Q2 employment figures, which showed the jobless rate hit a record
high of 34.4%, or 44.4% if discouraged job seekers are included.
One imagines the Q3 numbers will be even worse, which will signal
that poverty, hunger and inequality are all on the rise, further
undermining an already frayed social fabric.
Small wonder that inflation pressures remain moderate. In July, CPI
slowed to 4.6% – the middle of the SARB’s 3% to 6% target range –
from 4.9% in June and 5.2% in May.
To top it all off, the rand remains resilient, underpinned by
record current account and trade surpluses, which are largely the
product of red-hot commodity prices.
Against this backdrop, some may ask why the SARB is not cutting
again.
The SARB needs to avoid interest rate hikes this year, even if
monetary policy is extremely accommodative, as the economy is still
fragile.
Question - Given the importance of the SARB on the economy of
South Africa, you are required to write an essay which depicts the
main objectives associated with the SARB in general as well as the
objectives of monetary policy set by the reserve bank. In addition,
discuss the objectives of a government for setting financial
regulations.