PPS Investments commentary on the MPC’s unchanged repo rate decision

The Monetary Policy Committee (MPC) decided to leave the repo rate unchanged at 6.75%. Unlike the two previous unanimous decisions, there was a split in the decision with two members preferring to decrease rates by 25 basis points and three members preferring to leave the rate unchanged. The Reserve Bank’s Quarterly Projection Model has moderated the inflation expectation by showing decreases in forecasted inflation for 2019, 4.5% from 4.8%, 2020, 5.1% from 5.3% and 2021, 4.6% from 4.7%.

Similar to the previous MPC meeting, the South African GDP forecast for 2019 has again been negatively adjusted, although the forecast for 2020 and 2021 has remained unchanged. GDP for 2019 is now expected to average 1.0%, down from 1.3%, and expected to be 1.8% and 2.0% for 2020 and 2021 respectively. Globally, the governor highlighted the concern around trade tension and the likely effect of slowing momentum in global GDP growth.

Listening to the SARB Governor, one could be forgiven for expecting a conclusion where rates were reduced. Moderating inflation expectations, headwinds to local and global GDP growth and a high unemployment in South Africa are some of the factors that could have been considered. The most telling piece of information though, is that even though markets knew the raw data, the consensus expectation was for rates to be on hold. This shows that the MPC has continued to act in line with the framework they have built over the past few years. There is value in having a Reserve Bank that has a clear mandate and acts in accordance with that.