SA’s hopes likely to be dashed as economist predicts repo rate to remain unchanged

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South Africa’s hopes for a reduction in the repo rate are likely to be dashed as economists predict no change in the upcoming Monetary Policy Committee (MPC) meeting on Thursday. Frank Blackmore, Lead Economist at KPMG South Africa, has provided insights into the MPC’s decision-making process and the broader economic factors at play.

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Blackmore explains that the primary reason for maintaining the current repo rate is the South African Reserve Bank’s data-dependent approach. “Although inflation has slowed in South Africa, it is still not down to the target levels required by the Reserve Bank to ensure a sustainable reduction in inflation over this period,” Blackmore states. This cautious stance suggests that the MPC will wait for another two months before reconsidering any changes to the repo rate.

Main trading partners

The secondary reason for the anticipated decision is tied to the actions of South Africa’s main trading partners, particularly the United States. “The main trading partners, specifically America, have yet to decrease their rates in line with inflation,” Blackmore notes. While the US has made progress in slowing inflation, rates have not been reduced accordingly. “There is some probability, though be it small, of a rate reduction in September, but most likely it will only take place in November of this year,” he adds.

Blackmore also highlights the potential consequences of a premature repo rate cut in South Africa. “If South Africa were to go ahead and reduce its repo rates at this point, obviously there could be an exchange rate impact,” he warns. A depreciation of the Rand against currencies such as the Dollar, Euro, and Pound could lead to imported inflation, making foreign goods more expensive in Rand terms. This risk underscores the Reserve Bank’s need to align its decisions with broader global trends in interest rates.

The MPC’s decision on Thursday is expected to maintain the status quo, with no change in the repo rate. Blackmore’s analysis suggests that while there is some hope for a rate reduction later in the year, it is unlikely to occur until November, aligning with global economic conditions. For now, South Africans will have to wait and see how the Reserve Bank navigates the complex landscape of inflation and interest rates.

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Devina Haripersad Business Journalist
Devina is a passionate journalist covering the business beat, with a knack for uncovering the story behind the numbers. When she’s not exploring the latest developments in business and politics, Devina unwinds with long cardio sessions and sharing memes with friends who don't always get her dark sense of humour.

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