SARB Repo rate cut South Africa

Photo: AdobeStock

South African Reserve Bank keeps repo rate unchanged at 6.5%

Kganyago noted that future policy decisions will continue to be highly data-dependent.

SARB Repo rate cut South Africa

Photo: AdobeStock

After some consideration, the South African Reserve Bank (SARB) has decided to keep the repo rate unchanged at 6.5%.

“Monetary policy actions will continue to focus on anchorng inflation expectations near the mid-point of the inflation target range(3% – 6%) in the interest of balanced and sustainable growth.

“In this persistently uncertain environment, future policy decisions will continue to be highly data-dependent, sensitive to the balance of risk to the outlook, and will seek to look-through temporary price shocks,” SARB Governor, Lesetja Kganyago said.

The momentous decision comes off the back of a report turned in by Statistics South Africa (Stats SA), on Tuesday, noting a drop in year-on-year consumer inflation at the end of October 2019.

What is the repo rate?

The repo rate is the rate at which the central bank of a country (in this case, SARB) lends money to commercial banks in the event of any shortfall of funds. In essence, the repo rate is used by monetary authorities to control inflation.

Since consumer inflation dropped from 4.1% in September, to 3.7% in October, it was thought that this would be significant in swaying the central bank to decrease the repo rate.

According to reports, two of the five members of the Monetary Policy Committee, voted in favour of a drop in the repo rate. However, they were beaten by one voter who tipped the scale in the favour of those who chose to keep it unchanged.

Why inflation drop did not sway SARB’s decision?

While the drop in inflation promised to be a boost for the economy, caution was advised on how this may have a negative impact on the performance of the rand.

In the end, foreign investors are attracted to high yields and the low inflation could have negatively affected South Africa’s bonds.

As positive of a feat this may be for our economy, it did not offer much justification for the Reserve Bank to cut the repo rate this week.