Repo rate stays at 3.5%

South African Reserve Bank (Sarb) governor Lesetja Kganyago announced the repo rate will stay at 3.5% on Thursday, following the conclusion of the bank’s May Monetary Policy Committee (MPC) meeting.

The decision is in-line with expectations of most economists and market commentators, despite the higher than expected Consumer Price Inflation (CPI) figure for April, which came out on Wednesday.

Read: Inflation spikes to 4.4% in April

A spike in crude oil prices since the last MPC decision in March has pushed South Africa’s petrol price to a record high and fuelled inflation, but the recent rally in the rand could see a cut in fuel prices in June.

Nevertheless, the higher inflation rate has seen the Sarb warn of a possible rate hike later this year.

The latest MPC decision means the prime lending rate of commercial banks remains at a more than five decade low of 7%.

It is the fifth consecutive time that the MPC has opted to keep the repo rate on hold, after slashing rates by 300 basis points in total last year in light of the Covid-19 outbreak and subsequent financial fallout.

Read: Reserve Bank sends strong signal rate-cutting cycle is over

Domestic GDP is expected to grow by 4.2% in 2021 from 3.8% in March. The stronger growth forecast reflects better sectoral growth performances and a more robust terms of trade in 2021Q1. In 2022, growth is expected to be 2.3% (March 2.4%) and 2.4% (March 2.5%) in 2023. pic.twitter.com/ysDl4Bp7mC

— SA Reserve Bank (@SAReserveBank) May 20, 2021