In their final meeting for 2020, the Monetary Policy Committee of the South African Reserve Bank (SARB) decided on Thursday to leave the Repo Rate unchanged at 3.5%. The decision was the result of a tight race between 2 members who voted in favour of a 25 basis point rate cut, but lost against the 3 members who voted for no change.
Facing the facts that the economy (GDP) in South Africa will contract by around 8% in 2020 with a moderate recovery growth of 3.5% projected for 2021 while the inflation rate is hovering around the lower end of the SARB target corridor of between 3% and 6%, the motivation of those MPC members voting against a rate cut cannot be understood. A clear signal for the industry combined with relief for homeowners with loans and credit card debtors towards the end of the year would have been the prudent choice, but sitting in an ivory tower and totally detached from what is happening in the streets has been for years the forté of those making monetary policy.
At least the tight voting outcome combined with the broad-spectrum condemnation of the decision make the outlook brighter and prepare the way for a rate cut when the MPC reconvenes in January 2021.
So the Christmas Message from SARB is clear: Don’t spend and support the retail sector, don’t invest and rather watch us at the Reserve Bank on Christmas when we cash in our bonus cheques!