The South African Reserve Bank’s Monetary Policy Committee last year slashed its key repo rate by 300 basis points to 3.5%, bringing the prime lending rate for businesses and consumers to 7%. That was a decisive response to the damage to the economy caused by the Covid-19 pandemic and the lockdowns to contain it. In the second quarter , when much commercial activity was brought to a virtual standstill, the economy contracted by 51%.
While the rand has lost a bit of ground so far this year against the dollar, it is nowhere near the lows it hit in 2020. On the plus side for the rand, things look good for platinum group metals, notably rhodium, which has raced to fresh record highs above $20,000 an ounce. This has been driven in part by expectations of Chinese vehicle sales, suggesting that Chinese growth will be an engine for parts of South Africa’s economy.
“Rental prices will remain weak and the price of rentals in the inflation basket is quite sizeable,” Matikinca-Ngwenya also noted. On the other hand, food inflation has been bubbling and was 5.9% in November, but expectations of a bumper maize harvest this year could contain such pressures. That would be welcome with hunger on the rise.
So, the SARB seems to have plenty of reasons to cut. The vote at the last MPC was close, with three members opting to hold and two favouring a cut of 25 basis points. Since then, developments have tilted in favour of the doves.That does not mean that the SARB will pull the trigger. It weighs this kind of stuff very carefully. The case to hold might include general uncertainty.
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Source: dailymaverick - 🏆 3. / 84 Read more »
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