Understanding the MPC’s decision to maintain the repo rate - Chris Harmse

TO THE surprise of most economists and market analysts, the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) did not lower the repo rate last Thursday.

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This came after the inflation rate for February remained at 3.2%, the same level as in January 2024 and the seventh consecutive month in a row that the inflation rate came in under the MPC midpoint level of 4.5%.

Lesetja Kganyago, the governor of the SARB, at the press conference on Thursday, explained, “Moving to prices: while inflation is still in the bottom half of our target range, it has edged higher over the past few months.”

This statement is a bit strange as it can be argued that the inflation rate remained at 3.2% during the first two months of this year. One almost gets the feeling that the MPC strictly followed the US Federal Reserve (Fed) after it kept its bank rate the same as announced the day before.

The MPC considered two scenarios:

• 1. The high road scenario consists of a downturn in the US, which will weaken the dollar. Together with higher expected commodity prices, mainly for gold, the economy would experience improved terms of trade and an appreciated rand. This will lead to lower inflation and a lower repo rate.