SA Reserve Bank Kept Interest Rates (Un)changed at 3.5%

The South African Reserve Bank’s Monetary Policy Committee (MPC) has voted to hold rates.

In its first meeting for 2021, the committee decided to keep the repo rate at 3.5% and the prime lending rate at 10%. The prime and base home loan rate remain at a historic low of 7.0%.

The bank was widely expected put a hold on rates, though some economists and analysts believe that there is still room for rate cuts.

Reserve Bank governor Lesetja Kganyago said that since the November MPC meeting, a second wave of Covid-19 infections has peaked in South Africa and in many other countries.

“It is expected that these waves of infection will continue until vaccine distribution is widespread and populations develop sufficient immunity to curb virus transmission,” he said.

Kganyago said that while Covid infections continue to dampen economic and growth prospects – the rollout of vaccines is expected to do the opposite, boosting the economy. The Reserve Bank has therefore revised its projected GDP growth numbers for 2021 higher, he said.

Should a vaccination plan be effectively implemented in South Africa, the economic benefits of a healthy population would outweigh the costs of the vaccine, he said.

However, this comes with the caveat that much of the local rollout plan remains uncertain, and with expected delays, recovery across different economies is likely to be out of sync and uneven.

Until the vaccination strategy is in effect, a third and subsequent waves of the virus remain big risk factors to economic growth, he said.

“Despite very robust terms of trade and stronger exports, getting back to pre-pandemic output levels will take time. Domestic GDP is expected to grow by 3.6% in 2021, 2.4% in 2022, and 2.5% in 2023,” he said.

Looking in the near-term, Kganyago said that the current level 3 lockdown conditions will keep growth in the first quarter muted. While the lockdown is not as strict as those seen previously, it will still have an impact on economic activity.

Business Tech

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