The SA Daily
22 November 2019
No easing in sight yet
- The SARB has left the repo rate unchanged at 6.50%, opting to delay easing, as the Reserve Bank is concerned about the high SA risk premium due to the ever worsening fiscus and the now widely expected downgrade by Moody’s and SA’s resultant expulsion from the WGBI. The SARB’s decision comes despite weak growth and low inflation as well as the clear need for easing, at least from a cyclical and confidence perspective.
- The SARB has left its inflation forecast unchanged from the September MPC forecast, at 4.2%, 5.1% and 4.7% in 2019, 2020 and 2021 respectively. However, weak domestic demand and muted exchange rate passthrough, with an ever wider negative output gap, will eventually compel the SARB to trim its inflation forecast. The Reserve Bank views the risks to inflation outlook as balanced but sees the uncertainty about inflation risks as unusually high. The SARB may therefore well be considering rand weakness, even with constrained international oil prices, as likely to push inflation up. We doubt though that rand weakness following SA falling out of the WGBI after a Moody’s downgrade would lift inflation above 6%. Nevertheless, the SARB clearly is concerned about inflation, and inflation expectations, deviations from the 4.5% midpoint of the bank’s 3-6% target.
- The SARB now has trimmed its GDP growth forecast by 0.1 percentage point, as it views growth risks as biased to the downside. Its GDP growth average is 0.5% for 2019 and 1.4% and 1.7% for 2020 and 2021 respectively, significantly weaker than projections at the January MPC meeting.
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