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In a unanimous vote, the SARB opted to keep the repo rate unchanged at 6.50%, evaluating the risks to the inflation outlook “(t)o be largely balanced”. This was in line with market expectations.
Monthly inflation readings continue to remain largely anchored “(a)round the mid-point of the inflation target range, as food and services inflation remains subdued”, according to the SARB and as such the SARB’s Quarterly Projection Model’s (QPM) 2019 headline inflation forecast has eased further to 4.2% from 4.4% estimated previously (at the July MPC).
The medium term outlook however, which is key to the MPC’s current inflation targeting process remained unchanged at 5.1% for 2020, while 2021’s forecast edged up slightly to 4.7% from 4.6% previously.
Listen to podcastInvestec's Chief Economist Annabel Bishop on the Sarb's decision not to cut interest rates.
Demand side pressures continue to remain weak, while food, wages and rental inflation are projected to rise at moderate rates. Additionally, “(g)lobal inflation should remain low”, with Central Banks in advanced economies more accommodative.
Electricity, water and fuel prices continue to remain upside risks to the inflation trajectory.
Following a rebound in GDP in Q2.19 of 3.1% on a quarter onquarter seasonally adjusted annualised basis, expectations for domestic growth remain unchanged at 0.6% y/y in 2019. Growth forecasts for 2020 and 2021 however have softened to 1.5% (previously 1.8%) y/y and 1.8% (previously 2.0%) y/y respectively, “(d)ue to revisions to global growth and domestic potential growth”.
The MPC evaluates the risks to the growth forecast to be “(b)alanced in the near term, but remains concerned about medium term growth and employment prospects”. Therefore, the “Implementation of prudent macroeconomic policies and structural reforms that lower costs, and raise investment and potential growth, remains urgent”, the SARB stressed. Additionally, persistent global trade concerns and escalating geopolitical tensions remain downside risks.
The SARB reinforced its stance that monetary policy will continue to be focused on “(a)nchoring inflation expectations near the mid point of the inflation target range in the interest of balanced and sustainable growth”, with policy decisions remaining “(h)ighly data dependent”.