South African central bank leaves repo rates unchanged in close decision
- Policy committee votes 3-2 for no change.
- Bank's projection model indicates no rate cuts in near-term.
- Governor Kganyago says not up to bank to lift GDP.
JOHANNESBURG: South Africa's central bank left interest rates unchanged for the first time this year in a split decision on Thursday, saying risks to economic growth and consumer inflation were balanced.
Three members of the bank's five-member monetary policy committee (MPC) favoured keeping rates on hold at 3.5%, while two voted for a 25 basis-point cut, a split reflected in analysts' forecasts.
"In this highly uncertain environment, future decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook," said Governor Lesetja Kganyago as he announced the decision.
Kganyago said the bank's projection model showed no rate cuts in the near future and two hikes in late 2021.
The decision follows 300 bps of rate cuts since the beginning of 2020 to support an economy that was in recession before COVID-19 hit.
The bank slashed its 2020 growth forecast to a contraction of 8.2% from its July forecast of a 7.3% contraction, predicting a rebound in growth 3.9% in 2021.
Economic output recorded its largest contraction ever in the second quarter - down by an annualised 51% from the first quarter, or 16.4% in unadjusted terms - as a strict lockdown shut down most activity.
South Africa has more than 650,000 confirmed COVID-19 cases, the most in Africa.
President Cyril Ramaphosa said on Wednesday lockdown restrictions will be eased to their lowest level from next Monday and said international borders would reopen on Oct. 1. He also promised to unveil a recovery plan soon.
Against the backdrop of weak growth, calls from trade unions and some politicians for the bank to lower rates to support growth have grown louder. Kganyago said the bank's hands were tied.
"Monetary policy ... cannot on its own improve the potential growth rate of the economy or reduce fiscal risks. These should be addressed by implementing prudent macroeconomic policies and structural reforms."
The rand gained after the decision. At 1415 GMT it was 0.57% firmer at 16.1825 per dollar.