Interest rate cuts unlikely this year, say economists

The Reserve Bank has projected two increases of 25 basis points in the second and third quarter of this year.

South African Reserve Bank (Sarb) Governor Lesetja Kganyago. Picture: @SAReserveBank/Twitter

JOHANNESBURG - With the South African Reserve Bank citing prospective economic growth as a reason to keep the repo rate the same, it remains to be seen if there will be any interest rate cuts this year.

Governor Lesetja Kganyago announced on Thursday that the repo rate would remain unchanged at 3.5% and the prime lending rate at 7%.

He said that two members of the monetary policy committee preferred a 25 basis point cut while three preferred that they stay the same.

The Reserve Bank has projected two increases of 25 basis points in the second and third quarter of this year.

But Sanlam's chief economist, Arthur Kamp, said that this was unlikely.

"Given the fact that fiscal policy risks currency weakness and therefore long-term inflation risk and given the fact that on forward-looking inflation is negative, it seems unlikely that we're going to get further interest rate cuts this year."

The bank has revised global and local growth higher, considering the rollout of vaccines which is expected to boost the global economy.

But Alexander Forbes' chief economist, Isaah Mhlanga, said that there were also risks to this.

The Reserve Bank said that economic and financial conditions were expected to remain volatile for the foreseeable future.

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