In its first meeting for 2020, the members of the SA Reserve Bank’s Monetary Policy Committee (MPC) voted unanimously to reduce the repo rate by 25 basis points from 6.5% to 6.25%.
This will have the effect of reducing the prime lending rate from 10% to 9.75%.
Read more: How the interest rate decision affects you
Inflation
During the announcement, SARB Governor, Lesetja Kganyago, said that headline consumer price index (CPI) inflation is expected to peak at 4.9% in the final quarter of 2020 and settle at 4.5% in the third quarter of 2021. The forecast for core inflation for 2019 is unchanged at 4.2%. In 2020 the forecast is 4.3% - down from 4.5% - and in 2021 it is 4.4% - down from 4.6%. The bank’s forecast for core inflation for 2022 is 4.5%.
Growth
The forecast of GDP growth for 2019 has been revised downward to 0.4%, from 0.5%. As a result of growth being lower than previously expected in the third and fourth quarters of 2019, the forecast for 2020 has also been cut from 1.4% to 1.2%, and from 1.7% to 1.6% for 2021.
The GDP forecast for 2022 is 1.9%.
Currency
Since the previous MPC meeting in November 2019, the rand has appreciated by 2.6% against the US dollar and by 1.8% against the euro. “While the rand has benefited from improvements in global sentiment, high long term bond yields reflect concerns about domestic growth prospects,” said Kganyago.
“It remains urgent to implement prudent macroeconomic policies and structural reforms that lower costs and increase investment, potential growth and job creation.”
Industry response
Regional director and chief executive of RE/MAX of Southern Africa, Adrian Goslett, believes the MPC has acted prudently by seizing this opportunity to stimulate the economy.
“This decision will have positive consequences for the housing market. This cut will provide further relief to home owners who are struggling to keep up their monthly repayments. Lower interest rates are likely to encourage consumers to take on debt, which should in turn increase the number of home buyers in the market. We are hopeful that this announcement will translate into some much-needed growth for the housing market,” Goslett says.
Dr Andrew Golding, chief executive of the Pam Golding Property group, says it is encouraging that the MPC reduced the repo rate to help kick-start the economy and foster increased confidence among consumers, who are feeling the pressure of ever-rising costs.
“With projected subdued growth and muted inflationary pressures, the Reserve Bank’s decision is welcome – particularly given the heightened uncertainty ahead of the 2020 Budget speech and possible downgrade of SA’s credit rating by Moody’s in March,” says Golding.
Future prospects
Kganyago said it is the MPC’s policy to look through temporary price shocks, such as those created by geopolitical conditions and the possibility of investment status downgrades as well as electricity and water tariff hikes. He said there is scope for further easing of interest rates in the first and fourth quarters of 2021.
