The SA Reserve Bank’s Monetary Policy Committee has kept the South African repo rate unchanged at 3.5%. This means the prime lending rate stays at 7%.
The rand dropped to R14.64 against the US dollar immediately after the announcement as growth concerns are expected to be challenging for the next couple of years. The unit has however pulled back to last trade at R14.59/$.
This follows yesterday’s inflation print showing CPI cooled to 4.9% in June, down from 5.2% in May 2021, despite a sharp increase in food and fuel prices from June 2020 to June 2021.
The devastating effects of last week’s riots on the economic recovery are likely to keep rates on hold for some time.
The domestic economy grew by 4.6% in the first quarter of 2021, much stronger than the 2.7% expected at the time of our May meeting, Reserve Bank governor Lesetja Kganyago said. “That outcome reflected better sectoral growth performances and robust terms of trade. Commodity prices have remained high, sustaining income gains despite higher oil prices. However, recent unrest and economic damage could have lasting effects on investor confidence and job creation. We estimate the unrest to have fully negated the better growth results from the first quarter, resulting in an unchanged estimate of 4.2% for growth in 2021.”
