BREAKING NEWS: Interest rate remains unchanged

FILE PHOTO: IMFC press conference in Washington

JOHANNESBURG – The SA Reserve Bank Governer, Lesetja Kganyago, on Thursday announced that South Africa’s interest rate would remain unchanged. 

This was the Monetary Policy Committee’s (MPC) fifth policy meeting of the year, which came against the backdrop of a sharp drop in the rand and the country’s economy slipping into a recession, since the previous meeting in July.

The economy slipped into a recession after gross domestic product contracted by 0.7 percent in the second quarter following a 2.6 percent shrinkage in the first three months of the year, with the agriculture, transport and trade sectors struggling the most.

The Reserve Bank kept the repo rate unchanged at 6.5 percent in July, but warned that inflation pressures were rising.

Kganyago said that four members of the MPC preferred an unchanged stance and three members preferred a 25 basis points increase. He reiterated that quarter-on-quarter GDP contracted by 0.7 percent in the second quarter, revised down from -2.2 percent to -2.6 percent, though year-on-year basis, GDP growth in the first quarter was 0.8 percent

The Reserve Bank now forecasts growth in 2018 to average 0.7 percent, down from 1.2 percent in July. 

Kganyago said that headline inflation was now expected to remain at an average 4.8 percent in 2018, before increasing to 5.7 percent in 2019, up from a 5.6 percent projection, and moderating to 5.4 percent in 2020. Headline consumer price index is expected to peak around 5.9 percent in the second quarter of 2019. 

Most economists and financial analysts predicted that the rates would remain unchanged while some were not ruling out a rise before the meeting on Thursday, given the sharply weaker rand largely due to global market turmoil fanned by a trade war centred mainly on China and the US.