93% of economists say SARB will hold the repo rate

The South Africa Reserve Bank’s (SARB) Monetary Policy Committee is set to hold the repo rate at the 19-21 January meeting, according to 93% of panellists on Finder’s SARB Repo Rate Forecast Report. But over a third (36%) think the Bank should cut the rate.

Alexander Forbes chief economist Isaah Mhlanga thinks the Bank should hold. “The impact of past monetary policy decisions – 300bp reduction in rates in 2020 and reduction of regulatory capital for banks – provided much stimulus that is still working through the economy.

“More so, the economy is now on a recovery mode, though incomplete, and further monetary policy stimulus at this point is not going to help much as it works through the credit channel, which itself depends on job creation, which also, in turn, will take time as the economy recovers. Implementation of structural economic reforms combined with dealing with the COVID-19 health pandemic,” he says.

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BER chief economist, Hugo Pienaar, is the only panellist out of 15 forecasting a rate cut. He thinks the Bank will decrease the rate by 25bps, but is in favour of a deeper 50bps cut. “With a benign inflation outlook, monetary policy has space to provide some moderate further stimulus to the economy at a time when fiscal policy is heavily constrained to do so,” he said.

Independent economist, Elize Kruger, is one economist who expects the Bank to hold, but is in favour of a 25bps rate cut.“The SA economy is still bleeding amid the economic impact of the Covid-19 crisis, while consumer inflation remains well under control in the medium term forecast, thus a small window of opportunity has opened for further stimulation,” she said.

STANLIB economist, Ndivhuho Netshitenzhe, also called for a 25bps decrease, noting inflation remains under-control. “…That, along with the weak domestic economic environment that is expected to continue at least into early 2021 (as a result of increased lockdown measures), gives the SARB some room to be more expansionary in its monetary policy.

“Despite this, however, the SARB is aware that although SA consumer inflation is still expected to remain comfortably below the midpoint of the inflation target over the next 6 months, base effects could push SA inflation somewhat higher in 2021, especially during the middle of 2021”.

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However the majority of the panel (64%), including Economist at RMB, Mpho Molopyane, think the Bank should and will hold the rate.

“The growth and inflation outlook has not significantly changed since the November 2019 meeting to warrant a change [to] interest rates. GDP is going to take a while to return to pre-covid levels, with inflationary pressures relatively contained. This will enable the SARB to keep monetary policy accommodative and the repo rate unchanged in contrast to the tightening bias projected by the QPM at the November 2019 MPC meeting,” she said.


When will the rate first increase?

Nearly three quarters (73%) of the panel don’t think the rate will increase this year. 47% say a hike will occur in the first half of 2022, 20% are forecasting an increase in the second half of 2022 and 7% in 2023.

IQbusiness chief economist, Sifiso Skenjana, is one panellist who thinks the rate will increase in the first half of next year due to inflation. “We are seeing early signs of tapering off on monetary easing / accommodative policy in some of the developed economies which may suggest that we may see higher levels of inflation in those economies by year end 2021.”

FNB economist, Siphamandla Mkhwanazi, on the future of SA economy