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Repo rate to hold, but one in five panellists think the rate should change

09 July 2021 The South African Reserve Bank (SARB)

• 97% of economists expect the SARB to hold the repo rate
• However one in five (22%) think the rate should change
• 16% in favour of a rate cut and 5% in favour of an increase

The South African Reserve Bank (SARB) is set to hold the repo rate at the 20-22 July meeting, according to 97% of economists on Finder’s repo rate forecast report.

Several panellists, including Head of SA economic research at Standard Bank Elna Moolman, noted the rate will and should hold while the economy remains in recovery mode.

“In our view, the economy still needs as much as the policymakers can prudently provide. The SARB is supporting the economic recovery prudently by keeping interest rates at multi-decade lows, while the inflation forecasts generally drift around the mid-point of its 3-6% target range.

“There is at this stage no inflationary reason to hike interest rates, so the SARB can prudently keep monetary policy accommodative,” she said.

Carpe Diem Research Services independent economist Elize Kruger also thinks the rate will and should hold, and expects this window of unchanged rates to remain open until US interest rates start to rise.

However one panellist, Senior Lecturer at the Tshwane University of Technology, Mulatu Zerihun, thinks the Bank will and should cut the rate by 50 basis points at the upcoming meeting.

“Such a slight cut by 50 bps on the policy rate will assist to contain inflation at its target range for the remaining months of the year 2021. In addition, it halts the adverse effects of higher prices for food, electricity, and oil in the country,” he said.

Zerihun is not alone in thinking the Bank should cut the rate. One in five panellists (22%) say the rate SHOULD move, with 16% recommending a rate cut and 5% recommending an increase.

Taalnet Institute economist Christopher Masunda thinks the rate will hold but calls for a cut to help boost GDP.

“Given the fact that the economy is still grappling with the pandemic, a further cut might ignite a significant growth in GDP as compared to the 1.1% growth recorded in the first quarter (2021Q1),” he said.

However Stellenbosch University Business School lecturer Andre Roux warns “a premature lowering of rates could result in more severe increases a year or two down the road.”

Meanwhile Gordon Institute of Business Science Professor Adrian Saville, is one of two panellists (5%) who think the Bank will hold the rate, but recommend an increase.

“Inflation risk is real and rising. SARB mandate is to look after inflation and the purchasing power of the rand. Not to manage growth. Taylor Rule and other models make the case for a rate hike,” he said.

While an increase in July seems unlikely, 27% of panellists think the SARB will increase the repo rate this year - 8% say we could see a hike as soon as September, with 19% forecasting a November increase.

However, the majority of panellists don’t think we’ll see a rate increase until 2022 (70%). 54% expect the rate to increase in the first half of 2022, while 16% expect an increase in the latter half.

Just one panellist, Managing Director of Xesibe Holdings Ayabonga Cawe, expects the rate to first increase in 2023.

Regardless of when it happens, the majority of panellists (89%) expect the next rate movement will be up.

You can find the full report with additional commentary here:

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