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Repo rate stays at 3.5% as expected

And the prime lending rate of commercial banks remains at a five-decade low of 7%.
Sarb governor Lesetja Kganyago. Image: Waldo Swiegers/Bloomberg

The repurchase (repo) rate of the South African Reserve Bank (Sarb) remains unchanged at a record low of 3.5%, governor Lesetja Kganyago announced on Thursday.

It was a widely expected move and follows the September meeting of the central bank’s Monetary Policy Committee (MPC) this week.

Kganyago said it was a unanimous decision to keep the repo rate on hold.

This means that the prime lending rate of commercial banks also remains at a five-decade low of 7%.

It is the seventh consecutive time that the MPC has opted to keep the repo rate on hold, after slashing rates by 300 basis points in total last year as a monetary policy measure to help mitigate the impact of the Covid-19 financial fallout.

Kganyago said the bank had revised its GDP growth forecast upward for this year, while its forecast for fixed investment has also been revised up but remains constrained.

“We expect the economy to grow by an upwardly revised 5.3% this year [from 4.2%), despite the much larger negative effect on output than was previously estimated from the July unrest.”

“The July events and the pandemic are likely to have lasting effects on investor confidence and job creation, impeding recovery in labour-intensive sectors hardest hit by the lockdowns. GDP is expected to grow by 1.7% in 2022 [down from 2.3%] and by 1.8% in 2023 [down from 2.4%],”  he added.

Kganyago noted that while the third wave of the Covid-19 pandemic had peaked in SA, further waves of infection are likely to continue and presented a risk to economic growth.

“A steady improvement in vaccination rates will sustain confidence and global economic growth, even with expected further waves of the Covid-19 virus. However, vaccination rates are lagging in many emerging market and developing economies,” he said.

The governor did not specifically make any comment on SA’s vaccination rate.

“The virus however is only one of a series of current risks to the economic recovery that include rising inflation, weaker commodity export prices, and the longer term impact of scarring from the pandemic and the July unrest,” he said.

Reacting to the latest MPC decision, FNB chief economist Mamello Matikinca-Ngwenya noted that it was in line with FNB’s and market expectations.

“Despite the recent unrest, the better-than-expected Q2 [2021] growth outcomes, combined with continued government income support to vulnerable households, suggest that 2021 annual GDP growth will likely be better than initially anticipated,” she said, in-line with similar sentiments expressed by Kganyago.

“Headline inflation has continued to moderate from the recent peak but held marginally above the mid-point of the target range by elevated food, fuel and electricity price inflation.

“Stripping these out, however, core inflation remains low around the lower target of 3%, a clear indication that demand pull inflation is still subdued. So, while recovery is gaining momentum, the economy is still in need of support and as such, the Sarb should maintain the accommodative stance for longer,” Matikinca-Ngwenya added.

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Note. Crypto not affected by SA or interest rates in SA.

Think of it as hedging yourself against SA.

Very true, and if you are using ShapeShift then you are able to move your money into multiple crypto accounts and in different crytos with in seconds.

As a test, I moved the equivalent of just R1000 in 10 different accounts and back in 10min.

I no longer measure bitcoin, rather I use it as the yard stick for measuring.

Thanks for your insight. Will check out ShapeShift.

As someone who also has some crypto, it certainly is NOT a hedge. For an effective hedge there needs to be a correlation, I do not see this. Now don’t get me wrong having crypto exposure in your portfolio is not a bad thing in my opinion, it should just not be seen as a hedge against SA’s fiscal and economic risks. At the moment the best hedges in my opinion remain foreign FIAT denominated equities in developed economies. I could be wrong and stand to be corrected though.

thanks for your insight.

So cryptos are priced in USD. In SA, on the local exchanges you buy in Rands. You get the Rand equivalent, so the USD is priced in.
If (and I have seen) a crypto go from $1 to say $3 in the US… this is 200% growth. In Rand terms I have seen the same crypto moved from R16 to R45 … in Rands we got 181% growth…
Not many assets give 200% growth in a short space of time.

Definitely agree that some FIAT denominated equities in developed economies have given good returns… but access is a problem… which broker do you use?

Crypto definitely has potential for massive upswings as you mention, but the reverse is also true in that it has the potential for longish periods of massive downswings. These downswings and upswings also show no correlation with global or local fiscal and economic data, this is why I do not see it as a hedge but merely as a very risky part of my portfolio.

Most people invest now to then extract income from the investments in retirement, crypto is not really a hedge if in the future local inflation runs away but crypto is also at the same time in one of its longish downswings. This could be detrimental for someone who thought they could retire on crypto holdings as it would protect them against local fiscal and economic risks.

Regarding my broker, I trade on eToro though as I understand it they are not currently accepting new traders from South Africa (something about local SA fiscal regulations). Maybe some other commenters can indicate which platforms / brokers they use as I haven’t recently researched the best options out there.

Banks borrow at 3.5% and consumers borrow at 7%. Fellow South Africans I am just saying this is 100%.

Yes. Crooks. The inflation figures they talk about is rubbish anyway!!!!

You can get 7% on a USDC (dollar stable coin) account. Time to forget about these crooks. Time for a new dawn.

End of comments.

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