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Repo Rate Unchanged For Now
The South African Reserve Bank’s Monetary Policy Committee (MPC) recently left interest rates unchanged, maintaining the repo rate at 8.25% for the seventh consecutive meeting.
However, the decision was not unanimous, indicating potential changes in future meetings.
Not all MPC Members Wanted To Leave The Rate Unchanged
While four members of the MPC voted to keep rates unchanged, two members pushed for a reduction of 25 basis points.
According to Lesetja Kganyago, Governor of the South African Reserve Bank, the committee eventually found an unchanged stance most appropriate due to ongoing inflation risks.
Still, it is revealing that, some members argued that the inflation outlook had improved enough to consider a reduction in rates.
Inflation Outlook and Future Expectations
Kganyago noted that the inflation outlook has improved slightly, with the MPC now expecting headline consumer price inflation to be 4.9% for the year, down from the previous forecast of 5.1%.
‘Kganyago noted that the inflation outlook has improved slightly’
It may not seem like much but it is a significant outlook shift.
Over the next few quarters, headline inflation is expected to eventually dip below the 4.5% midpoint, mainly due to lower fuel and food prices, and a stronger rand.
But for now the MPC remains cautious about lowering rates until inflation gets close to their 4.5% target level.
Might We See A Drop Soon?
The committee is still wary of inflation and factors that might keep inflation higher than they would like.
Recent industry wide surveys show average expectations at 5% next year and 4.9% two years ahead, which is unfortunately still above the 4.5% target that has been broadly publicised. It might be hard for them to now ignore that number after going on about it so much.
It remains to be seen how the US economy and elections process effect international markets and the Rand/Dollar.
Recent changes in the US political stage after the Trump assassination attempt and Biden announcement have set markets into some flux.
Locally, the changes to the government make up and new ministers getting new posts within the GNU may also have interesting effects on SA’s economic outlook.
The next MPC meeting on 19 September 2024 and it will be interesting to see if more MPC members push for a cut.
The post MPC Split on Rate Reductions – That’s Good first appeared on Debtfree Magazine.