The South African central bank (SARB) announced that the Monetary Policy Committee (MPC) decided at today’s MPC meeting to leave the key policy rate unchanged at 5.00%.
Today, the South African central bank’s decision to stay on hold came out in line with expectations. The rand has been under pressure for most of the day, partly due to the uncertainty connected with the rate announcement but mainly on the back of the risk-off environment today. It gained a bit after the SARB kept interest rates on hold.
Assessment and outlook
In the statement, the SARB governor, Gill Marcus, highlighted the risks to the domestic economy from the further weakening global economy but also from the impact of the recent strikes in the mining sector. While commenting on inflation, Marcus said that inflation risks are more or less balanced, with fuel and food prices posing the main risks. Furthermore, Marcus mentioned the exchange rate as a ‘potential risk to inflation’ with the current account as a risk to the rand.
Summing up, we think that the risks to growth are clearly tilted further to the downside. Recent strikes in mining have posed some downside risks to growth for the past two quarters this years. Even though Marcus said that the decision today was unanimous, what was important was that the MPC actually discussed whether a rate cut was appropriate today. In our view, this is an indication that if the economy shows sharper signs of distress and market conditions are favourable, a further rate cut could be in play. Whether this will be at the next MPC meeting in November is uncertain but the hard data and also the rand development will be crucial.