'Global uncertainty' sees SARB hold repo rate
The South African Reserve Bank has decided to keep the repo rate unchanged at 7.5%.
Governor Lesetja Kganyago made the announcement on Thursday afternoon, following a meeting of the central bank's Monetary Policy Committee.
He said four members of the MPC preferred keeping the rate steady, while two favoured a 25 basis point cut.
Kganyago said the decision comes amid risks to the economic forecast on both the upside and the downside, with medium-term risks leaning toward the upside.
"For several quarters we have enjoyed rising confidence in South Africa, with a smaller country risk premium and lower bond yields.
"However, the global economy is not on a stable footing and there are also domestic uncertainties, which put these favourable trends at risk. This calls for a cautious policy approach.
"As before, the forecast sees rates stabilising at a neutral level of about 7.25%.This rate path from the Quarterly Projection Model remains a broad policy guide.
"The MPC would like to emphasise that its decisions will be made on a meeting-by-meeting basis, and will continue to be outlook dependent, responsive to data developments, and sensitive to the balance of risks to the forecast.
"Given the uncertain global situation, the MPC spent time during this meeting exploring different external scenarios.
"For one, we considered a slowdown in the United States, with a weaker dollar and higher commodity prices, especially for gold.
"This implied some modest benefits for the South African economy, given better terms of trade and a stronger rand. Both inflation and the policy rate were therefore a little lower, relative to the baseline forecast," says Kganyago.
He added that the committee also explored scenarios built around changes in South Africa’s access to US markets.
"If South Africa were to lose AGOA benefits, we see some weakening of exports and slightly lower growth.
"If that were compounded with tariffs on South African exports, the effects would be larger.
"The most severe scenario we considered added a sentiment shock, with a weaker rand, higher domestic inflation and therefore a tighter policy stance.
"In this case, growth would be lower by 0.7 percentage points, with the exchange rate depreciation offsetting some of the tariff effects on exports.
"In a difficult global environment, it is vital to sustain domestic reforms that boost growth, while preserving macroeconomic stability.
"The MPC’s main contribution is to deliver low and stable inflation, with well-anchored inflation expectations. The committee remains vigilant, and ready to adjust policy as needed," Kganyago explained.
