Reserve Bank keeps repo rate unchanged

Reserve Bank keeps repo rate unchanged

The Reserve Bank’s Monetary Policy Committee (MPC) has resolved to keep interest rates on hold.

Reserve Bank Governor Lesetja Kganyago

This is the third consecutive quarter the central bank has kept rates unchanged.  

The repo rate stands at 3,5% while the prime lending rate is 7%.

The MPC met for the first time in 2021 on Thursday.

“Although the virus will continue in new waves, the rollout of vaccines is expected to boost global growth prospects generally. We have therefore revised global growth for 2021 higher.

“While financial asset prices were volatile for much of the past year due to pandemic-related developments and geopolitical events, recent months have seen markets strengthen,” says Reserve Bank governor,  Lesetja Kganyago.

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The central bank spent much of last year making cuts to interest rates amid the grim economic outlook.  

Last year, it cut the repo rate by a total of 300 basis points in the face of the Covid-19 pandemic.

Kganyago says the economy was showing minor signs of recovery but added it’s not cause for celebration yet.

“Despite very robust terms of trade and stronger exports, getting back to pre-pandemic output levels will take time. Sharply lower public and private investment last year and continued weakness in 2021 will weigh on growth prospects. GDP is now expected to grow by 3.6% in 2021 and by 2.4% in 2022.2 GDP growth of 2.5% is expected in 2023.”

Kganyago says despite the slight improvement in the prospects, policy cannot on its own improve the potential growth rate of the economy or reduce fiscal risks.    

“While monetary policy will continue to support the economic recovery, a faster growth rate depends on implementing prudent macroeconomic policies and structural reforms.”  

He warns that an increase to rates is still on the cards at a later stage in the year.  

“The implied policy rate path of the Quarterly Projection Model (QPM) indicates two increases of 25 basis points in the second and third quarters of 2021.”

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