Exciting times ind the fiscal world surrounding South Africa#s technical recession. While SARB acted in the interest of preserving what there is in growth without deterring any investors, Ramaphosa has the more difficult job when addressing the nation this afternoon to announce the upcoming “Stimulus Package” to drive the economy out of its negative corner.
h3. Interest Rates
The SA Reserve Bank (“SARB”) announced yesterday afternoon that it will keep the repo rate unchanged at 6.5%, but the decision was apparently a close call. Governor Kanyago said that four members of the bank’s monetary policy committee (“MPC”) preferred an unchanged stance, while three members advocated for a 0.25% increase.
Ahead of the announcement, Into SA already reported that it is likely that the bank would keep the rate unchanged, especially in light of a decrease in the consumer inflation rate for August despite the fact that the outlook – due to petrol price hikes and other imported inflation products – for inflation is “up” and not “down”.
With the repo rate unchanged, the prime lending rate will – for now – stay at 10%.
h3. Stimulus Package
At 10am President Cyril Ramaphosa will unveil an economic stimulus package that he hopes will lift South Africa’s sluggish economic growth rates and create jobs. Concrete plans for an economic stimulus package were announced by Ramaphosa, in his capacity as ANC President, in late July after an NEC lekgotla.
Earlier that month Stats SA had announced the economy had shrunk by 2.2% in the first quarter of the year, later revised downward to -2.6%. SA officially entered its first technical recession since 2009 in September, when GDP growth for the second quarter decreased by 0.7%. This, in turn, pushed growth projections down. SARB revised its growth projection for 2018 down from 1.2% to just 0.7%.
While the content of Ramaphosa’s stimulus package is unknown, government officials have over the past few weeks flagged some sectors as fundamental to its economic recovery plan. These include tourism, mining and agriculture. The package is also expected to be “budget-neutral”, meaning that budgeted spending will be re-addressed and re-prioritised.
The president is also expected to speak about changing the constitution to make it easier for land expropriation without compensation, and a possible relaxation of visa requirements to boost tourism.
Investors will be looking to see whether government commits backing any specific infrastructure projects.