PRETORIA– The South African Rserve Bank (SARB) has cut its key repo rate by 25 basis points to 6.5 per cent, in line with market expectations.
Reserve Bank Governor Lesetja Kganyago told a media conference here Wednesday that four members of the central bank’s Monetary Policy Committee (MPC) preferred a reduction, while three wanted an unchanged stance. The central bank last lowered the repo rate at its July 2017 meeting.
At its second meeting of 2018 this week, the MPC considered the impact of the incoming one per cent increase in South Africa’s Value Added Tax (VAT) which will come into effect on April 1. The VAT increase was announced in the National Assembly in February.
Kganyago said the central bank focused on the second-round effects of the increase which are expected to remain small. However, the MPC said while the domestic economic growth outlook for 2018 is more favourable, it remains challenging.
This follows an upward revision of historical gross domestic product (GDP) data and a fourth-quarter outcome of 3.1 per cent which surprised on the upside. Following an annual growth rate of 1.3 per cent in 2017, the SARB expects a growth rate of 1.7 per cent for 2018 compared with 1.4 per cent (forecast) previously.
For 2019, the forecast is at 1.5 per cent which is marginally lower than a previous forecast of 1.6 per cent. Growth for 2020 is projected at 2.0 per cent.
At these growth rates, the negative output gap, which measured – 1.1 per cent in 2017, is expected to close in 2020. The composite leading business cycle indicator continued its upward trend in January, consistent with the improved outlook, said the Governor.
The improved growth outlook is driven primarily by an increase in business and consumer confidence.
Nedbank economists earlier in the week announced their expectation of a 25 basis point reduction and said this would likely be as a result of much better-than-expected inflation figures and rating agency Moody’s decision not to further downgrade South Africa.
Chances of further cuts for the rest of the year will be limited by increasing inflation as the year progresses and improving domestic demand, said Nedbank.
Kganyago said the affirmation of South Africa’s sovereign rating as investment grade and the change of the outlook from negative to stable by Moody’s had contributed to the recent resilience of the South African Rand
Source: NAM NEWS NETWORK