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Standard Bank Group
The SA Daily 19 July 2019

Repo down to 6.5%

Shireen Darmalingam

  • The South African Reserve Bank (SARB) has cut the repo rate by 25 bps, to 6.5%, as widely expected. The MPC decision was unanimous this time; at the May meeting, three members voted for hold and two for a cut.
  • The SARB downwardly revised inflation and growth forecasts, now expecting CPI to average 4.4% in 2019 (4.5% at the May meeting). CPI forecasts for 2020 and 2021 are unchanged; CPI at 5.1% in 2020 and 4.6% in 2021. A peak is expected at 5.4% in Q1:20 due to electricity, food and fuel prices. Though food prices have been subdued, the bank expects prices to rise in H2:19.
  • The SARB sees the risks to inflation as balanced due to subdued demand pressures. However, the bank sees wages and rental prices rising. The bank noted that the impact of upside risk to the inflation trend could be substantial, which could come from tighter global financial conditions and trade tensions.
  • The bank now forecasts GDP at 0.6% for 2019 and 1.8% for 2020 due to global growth concerns as well as domestic risks such as poor sentiment and insufficient investment. The bank reiterated that policy adjustments would be highly data-dependent; anchoring inflation expectations at 4.5% remains the key target.
  • We are not yet changing our interest rate forecast to include further monetary easing. However, despite the local and global risks, this is a very close call and we see a real chance of one more 25 bps rate cut.

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