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MPC announcement

23 July 2020 Luigi Marinus, Portfolio Manager at PPS Investments

The Monetary Policy Committee (MPC) decided to decrease the repo rate by 25 basis points to 3.50%. This was a split vote within the committee with three members voting for the rate cut and two members voting for no change in the short-term interest rate.

The governor highlighted the effect that the lockdown due to COVID-19 has caused on the expectation on GDP growth globally and in South Africa. The GDP growth expectation in South Africa was further lowered to a contraction of 7.3% in 2020, from the previous expectation of a contraction of 7.0% for the year. The expectations for 2021 and 2022 were both lowered by 0.1%, to 3.7% and 2.8% respectively.

Even though the most recent inflation print was at 2.1% year-on-year, the forecasted inflation for 2020, 2021 and 2022 was only marginally lower at 3.4%, 4.3% and 4.3% respectively. These expectations were on the back of an increasing oil price averaging $40, $45 and $50 per barrel over the next three years.

The action by the MPC in the midst of the COVID-19 pandemic has been decisive, but the governor has pointed out that monetary policy alone cannot provide all the stimulus needed for the economy to grow and function effectively again. This together with other policies and reforms will help to enhance the benefit to South Africans.

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