Thu, 25 Feb 2021

Reserve Bank keeps rates on hold at 3.5%

News24
22 Jan 2021, 00:10 GMT+10

The Reserve Bank has decided to keep rates unchanged at 3.5%, in line with the expectations of economists.

Governor Lesetja Kganyago made the announcement on Thursday afternoon, following the bank's Monetary Policy Committee's (MPC) first meeting for the year this week. Two of the MPC's five members were in favour of a cut of 25 basis points.

The MPC expects inflation to remain "well contained" in 2021, before rising to around the midpoint in 2022 and 2023, said Kganyago.

The Reserve Bank also revised its growth forecast for 2020 to -7.1% from -8% at the last meeting. It expects growth to remain muted in the first quarter of 2021. Overall 2021 growth is projected at 3.6%.

"Despite very robust terms of trade and stronger exports, getting back to pre-pandemic output levels will take time. Sharply lower public and private investment last year and continued weakness in 2021 will weigh on growth prospects," said Kganyago.

The Reserve Bank sees potential new waves of the Covid-19 virus weighing on economic activity both globally and locally. "... Constraints to the domestic supply of energy, weak investment and uncertainty about vaccine rollout remain serious downside risks to domestic growth," said Kganyago.

The Reserve Bank expects the rollout of vaccines to boost global growth prospects - but the recovery will be uneven, as the global distribution will be slow. Kganyago said that the MPC did not take into account the domestic vaccine programme for SA-specific growth projections. "The plan got announced at the time we were way down in our forecast," said Kganyago. "Should a vaccination plan in South Africa be implemented judiciously - it should have a positive impact on the economy.

"What is in no doubt is that to the extent that there will be a cost to vaccination - [but] the economic benefits of a healthy population would far outweigh costs in rolling out a vaccine," he added.

Commenting on the funding of vaccines, the governor clarified that decisions on vaccinees cannot be made by the bank. "Decisions of how to fund vaccines, are not central bank decisions," said Kganyago. "It is not for us to decide what vaccine government must source for the population and who must be vaccinated," he stressed.

He explained that if government would need foreign exchange to source vaccines from overseas - it could purchase foreign exchange from the Reserve Bank to fund the vaccine. But government could also draw from its existing balances of its foreign exchange accounts to purchase vaccines, said Kganyago.

Source: News24

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