Mixed expectations from economists regarding repo rate

Some economists expect the Reserve Bank’s Monetary Policy Committee to leave the repo rate unchanged while others have forecast a 50 basis points cut on Thursday afternoon.

In 2020, the bank has cut the repo rate by 225 basis points.

Inflation is forecast to be lower due to the weak economic prospects, low demand and lower fuel prices.

In the video below, economists forecast a cut in the interest rate:

[embedded content]

The Reserve Bank cut the repo rate, putting money back in the hands of households and businesses as the effects of the coronavirus became apparent. At the April meeting, the bank said its Quarterly Projection Model indicates five repo rate cuts of 25 basis points extending into the first quarter of 2021.

The Reserve Bank expects inflation to remain within the target bracket for some time to come, averaging 3.6% in 2020 and increasing to 4.5% in 2021.

Chief Economist at Alexander Forbes, Isaah Mhlanga, says the interest rate is likely to remain unchanged as the previous cut hasn’t filtered through the economy.

“We expect the bank to keep repo rates unchanged at 4.25%. Normally, the MPC’s decisions filter through the economy between an 18 to 24 month period. Meaning, the decisions they took have not yet filtered through the economy.”

In a survey conducted by SABC News on Monday, the majority of economists said they expected the Reserve Bank to cut the repo rate.

Nine out of 11 economists surveyed expect the Reserve Bank to cut the repo rate by between 25 basis points and 100 basis points.

Most views shared by economists are that inflation will fall below the lower end of the Reserve Bank’s target range in the coming months.

Some say the central bank will likely cut the repo rate as it is primarily focused on providing as much support to the economy as it can, given the unprecedented economic damage that COVID-19 pandemic and the lockdown are having in South Africa.

Others said they believe a smaller 25bp rate cut would be ideal, as the Reserve Bank would likely need to preserve some room to implement further easing later on in 2020, should conditions worsen further.

Some said the earlier 225 basis points cuts are yet to filter through the economy and therefore, it would be premature for another rate cut, before an assessment of the impact of the previous rate cuts.

The video below details the survey done by SABC News:

[embedded content]