MPC misfires on repo rate

Surprisingly, Kkganyago revealed it did not even discuss a 50-basis point cut.

- Ryk van Niekerk

Economists are known to be diplomatic when reacting to economic developments involving the state and the South African Reserve Bank (Sarb). At some companies, especially banks, policies often prevent economists from commenting on the likely impact of political events on the economy or criticising these regulators.

The reasoning behind these policies is clear: avoid alienating vital stakeholders, as doing so could jeopardise future engagements or negotiations. The underlying argument might be summarised as: "A sound bite in the media is not worth a billion-rand's worth of business."

This cautious approach was evident last week Thursday when Reserve Bank Governor Lesetja Kganyago announced a modest repo rate cut of just 25 basis points (bps). This decision was a little unexpected given that inflation had fallen to 2.8% in October - well below the lower boundary of the Reserve Bank's 3%-6% target range. The last time inflation was this low was in May 2020, at 2.1%.

Looking even further back, inflation hasn't been lower than 2.8% since 2005 - nearly two decades ago.