South African Reserve Bank Repo Rate Cut

July 20, 2017

South Africa’s central bank interest rate was cut for the first time in several years, and the decision drew dissents favoring no change by two of the Monetary Policy Committee’s six members. South African GDP unexpectedly contracted in the first quarter in a broad-based way. The growth outlook has worsened. Excess product supplies will consequently be greater than assumed previously in 2017-19. Inflation has fallen, and the assumed path of future inflation is lower. But a released statement concedes that upside risks remain and that monetary policy is not the best response to weak growth due to structural economic deficiencies. Officials thus promise to remain vigilant in pursuit of its primary objective of securing price stability.

In this highly uncertain environment, future policy decisions will be dependent on data
outcomes and our assessment of the balance of risks. We remain vigilant and would not
hesitate to reverse this decision should the inflation outlook and risks deteriorate.

At 6.75% now, the repo rate remains 175 basis points above its end-2013 level.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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