Kganyago attributes repo rate cut to lower inflation figure

The central bank has reduced the repo rate to 6.25%, dropping the prime lending rate to 9.75%.

FILE: SA Reserve Bank Governor Lesetja Kganyago. Picture: GCIS

JOHANNESBURG - Reserve Bank Governor Lesetja Kganyago on Thursday said while the bank had lowered the repo rate by 25-basis points, it would continue to monitor the overall situation, especially when it came to ratings agencies.

The bank has reduced the repo rate to 6.25%, dropping the prime lending rate to 9.75%.

The rate remained unchanged in the last quarter with the bank citing stagnant economic growth.

Kganyago has attributed the repo rate cut to the lower inflation figure.

“While the committee would like to see the inflation expectations anchored closer to the midpoint of the inflation target range on a sustained basis, the lower inflation forecast and improved risk profile opens some space to provide further policy accommodation to the economy.”

He said that year-on-year, inflation dropped from 3.7% in October to 3.6% in November.

“The expectations for 2020 declined to 4.8% and 5% for 2021.”

Kganyago said the inflation outlook was stable, which was good for trade.

The central bank governor said that the bank expected the fourth quarter to show some positive economic growth.

While the cut in the repo rate was good news for those in debt, Governor Kganyago said that the GDP contraction in the third quarter confirmed that the economy remained weak and vulnerable.

"While growth in the fourth quarter is expected to have picked up, electricity supply constraints will likely keep economic activity muted in the near term. Public sector investment continues to be weak and export growth remains lacklustre, despite strong terms of trade. Government and household consumption, and private investment, continue to grow, albeit modestly."

He said that the monetary policy committee would continue to monitor inflation.

"Monetary policy actions will continue to focus on anchoring inflation expectations near the mid-point of the inflation target range in the interest of balanced and sustainable growth. In this persistently uncertain environment, future policy decisions will continue to be highly data-dependent, sensitive to the balance of risks to the outlook, and will seek to look-through temporary price shocks."

He said while the bank was hopeful for better growth in the fourth quarter, prospects for overall growth remained slim.

Kganyago added that they did not factor in the effect of load shedding when making decisions on the repo rate.

He said they did not expect that load shedding had the biggest effect on growth in the fourth quarter.

"Whilst it took place, the primary activity that takes place in December is in the retail sector and the figures and initial indications are that retail seemed to be doing realy well in December and this might have just flown from what we've seen in November."