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SARB decision to keep rates unchanged ’good for the economy’

Published Sep 23, 2021


Following today’s South African Reserve Bank (SARB) announcement to keep interest rates unchanged, the chief executive of FNB, Jacques Celliers says the SARB’s measured approach to monetary policy supports the country’s positive economic trajectory in emerging from the Covid-19 pandemic.

“We firmly believe that a sustained vaccination programme can lead to a more open economy and broaden economic opportunities for consumers, businesses and local communities. Overall, the country’s approach to economic recovery also needs to consider the participation of the worst affected sectors including travel, tourism and hospitality.

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“Broadly, the current interest rate levels remain conducive to helping individuals and businesses continue improving the management of their money,” Celliers says.

FNB chief economist, Mamello Matikinca-Ngwenya, says the decision to keep rates unchanged was in line with FNB’s and market expectations. “Despite the recent unrest, the better-than-expected second-quarter growth outcomes, combined with continued government income support to vulnerable households, suggest that 2021 GDP growth will likely be better than initially anticipated.

“Headline inflation has continued to moderate from the recent peak but, at 4.9% year-on-year for August, held marginally above the mid-point of the target range by elevated food, fuel and electricity price inflation. Stripping these out, however, core inflation remains low around the lower target of 3%, a clear indication that demand-pull inflation is still subdued. So, while recovery is gaining momentum, the economy is still in need of support and as such, the SARB should maintain the accommodative stance for longer,” Matikinca-Ngwenya says.

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Inflation expectations

In its third-quarter 2021 inflation-expectations survey of business people, financial analysts and trade union representatives, the Bureau for Economic Research (BER) found that the three groups, on average, expect inflation to remain anchored at the midpoint of the SA Reserve Bank’s inflation target range. They forecast 4.2% for this year and then for inflation to pick up slightly to 4.4% next year and 4.5% in two years.

Inflation over the next five years is projected to average 4.3%.

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However the expectations from a fourth group, households, are that inflation will be higher. After alternating between 4.9% in the first quarter and 5.1% in the second quarter, household inflation expectations increased more meaningfully to 5.7% in the third quarter.

On average, the survey respondents did not change their view on GDP growth from the second to the third quarter of 2021. They expect the economy to grow by 1.8% this year (1.9% previously), and then to decelerate to 1.3% next year (similar to the previous quarter). However, the unchanged average was due to the social groups who amended their forecasts in opposite directions.

Trade union officials were not as pessimistic about wage increases as they were during the second quarter, the BER reports. This upward revision dragged the average forecast for 2021 up slightly from 3.5% to 3.7%. For next year, the other two social groups made downward revisions to their respective forecasts. As a result, the average forecast for 2022 was unchanged.

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