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Sarb’s MPC cuts the repo rate

GDP forecasts for 2020 & 2021 have decreased.
Image: Moneyweb

The SA Reserve Bank’s Monetary Policy Committee (MPC) has decided to reduce the repo rate by 25 basis points to 6.25% from 6.5% – a unanimous decision.


Headline CPI inflation is expected to peak at 4.9% in the final quarter (Q4) of 2020 and settle at 4.5% in the third quarter of 2021 (one quarter earlier).

The forecast for core inflation for 2019 is unchanged at 4.2%, is 4.3% in 2020 (down from 4.5%) and 4.4% in 2021 (down from 4.6%). The Bank’s forecast for core inflation for 2022 is 4.5%.

In a statement sent after the bank’s decision, the Bureau for Economic Research’s (BER’s) Inflation Expectations Survey 19Q4 revealed that in Q4 2019, average inflation expectations for 2019, 2020 and 2022 declined further.

“Analysts, business people and trade union representatives on average expect headline inflation to be 4.5% in 2019 (0.1% point lower than previously), 4.8% in 2020 (-0.2% points) and 5.0% in 2021 (-0.1%). Average inflation expectations for 2019 have fallen by 1.5% points over three years – from 6.0% when surveyed for the first time in the first quarter of 2017 to 4.5% currently,” states the BER.

The results of the BER survey is reportedly one of many factors the MPC considers in its interest rate decision.


The forecast of GDP growth for 2019 has been revised lower to 0.4% (from 0.5%).

The forecasts for 2020 & 2021 have decreased to 1.2% (from 1.4%) and 1.6% (from 1.7%), respectively, due to lower growth than previously expected in Q 3 & 4.

The GDP forecast for 2022 is 1.9%.


Since the November MPC meeting, the rand has appreciated 2.6% vs the US  dollar and 1.8% versus the euro.

While the rand has benefited from improvements in global sentiment, high long term bond yields reflect concerns about domestic growth prospects.

Governor Lesetja Kganyago said implementation of prudent macroeconomic policies and structural reforms that lower costs & increase investment, potential growth and job creation remains urgent.

Industry comment

The decision may have come as a surprise to some.

Economist Mike Schüssler tweeted: “That was unexpected good news. small piece of good news but good nonetheless.”

All but three of the 24 economists Reuters surveyed last week expected the repo rate to be held at 6.5%. Of 19 economists surveyed by Bloomberg, only three forecast a 25 basis-point reduction, with the rest foreseeing the benchmark rate unchanged.

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Well done Mr Governor-100% correct call! Demand driven inflation is low and we need growth at close to any cost. Lets watch the ZAR but we could be pleasantly surprised

And what’s so nice about it is that the Rand is dropping and the petrol price will rise and more taxes will be collected.

What do you want? A ZAR at 12 with interest rates destroying employment. Surely we need jobs and growth first. A nice yachting holiday in the Med second. And if growth comes through then the currency could recover.

I also hate the ANC-but surely this is a step in the correct direction. SOE mismanagement sorted would be a bigger boost to the ZAR than 25bps…or am I too old to understand all of this?

Less investment and less growth.

What people don’t seem to realise is that lowering interest rates is really debasing your currency. When a currency is debased it makes all dependent on it poorer, not just the interest dependent retirees. The only winners are those closer to the fiat money creation who get to spend inflated rands at the old price. The biggest losers are the poor who have few assets. Falling interest rates destroy industrial capital and transfer wealth to bond speculators by the process of increasing the liquidation value of debt. South Africans will have to work a whole lot harder to import the same machinery and imported goods. The terms of trade have just deteriorated. Any benefits accrued by a weaker rand are ephemeral – eaten up by inflation in a short time. The rand could purchase $1.30 50 years ago. All that debasement and SA is not an economic powerhouse? Maybe debasement is not the answer. All wage earners are penalised. The cash flow of wages comes about from the wage earner exchanging his or her labour for cash. The purchase price of this cash flow has now increased but labour trudges along, under the same conditions, thinking they are better off. Fools. All of them

Aye Richard, I agree and it will be interesting to see if the tiny drop will be matched by a similar loss of value of ZAR against say, US$. I think SA’s relatively high interest rates are the only thing keeping the ZAR somewhat stable in value against the solid (proper?) currencies.

Repo Rate is not married to the exchange rate… dummy.

Not the interest rate that is destroying employment or growth but the CORRUPT ANC AND FRIENDS. This is a wrong move to appease the overdebted ANC.

Some thought and skill has gone into this decision.

These are concepts totally foreign to the ANC.

Time the ANC is broken up into the good the bad and the ugly.

Sam Seeff and Pam Golding’s son, giving their expert and thorough economic analysis on the decision by the SA Reserve Bank’s Monetary Policy Committee… and to think that I was under the mistaken impression they only sold houses for a living.

Sending a signal needs a bold action, not a wink. They should have cut 1% to get message across

Retirees who rely at least partly on interest would disagree with you. Not everyone is in debt. This from someone who remembers well when bond interest rates went up to 25% mid 1998.


Sure, the yield on savings would reduce. But without investment and jobs there is no future to any domestic savings in any event.

Take something that requires capex = a solar project. In the US, the exact same physical deployment of technology at a 2.5% cost of capital to a pension fund yields a sustainable selling price and attractive equity return at under R0.5/kWh. Now do the same project in SA at 12% finance (which the banks get away with charging despite what is in effect a sovereign guaranteed offtake agreement). It becomes R0.8/kWh or 60% more due to capital cost to yield a much higher return on equity than US equity will accept.

We need to drop the required equity IRR and we can only drop that by dropping the cost of debt as alternate investment. We are digging our own hole deeper every day IMHO. If the Runt moves to 18 on the carry trade, so be it. We do NOT need short term investors. At least our exports will boost at 18.

They are setting the ground work, we looking at 4.5% by the November 20120 cut… Watch this space.

November 2020 cut.

End of comments.





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