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Repo rate remains unchanged

South African Reserve Bank Governor, Lesetja Kganyago, has announced that the repurchase or repo rate will remain at 3.5%.

The repo rate impacts how much interest consumers pay on their loans – as the repo rate increases, so do interest rates.

Kganyago said the implied policy quarterly rate path projects an increase of 25 basis points in the fourth quarter of 2021 with increases expected in 2022 and 2023.

“These repurchase rates reflect a highly accommodative policy stance through the end of the forecast… keeping financial conditions supportive of credit demand as the economy continues to recover.

“Better anchored expectations of future inflation could keep interest rates lower for longer and can be realised by achieving a stable public debt level, increasing the supply of energy, moderating administered price inflation and keeping wage inflation low into the recovery,” he said.

He also announced that the country’s domestic economy grew by 4.2% in the first quarter of 2021 and 4.7% in the second quarter of 2021.

“These outcomes reflect better sectoral growth performances and robust terms of trade. Commodity prices have been extraordinarily high, sustaining income gains despite somewhat higher oil prices.

While more South Africans have re-entered the jobs market as economic activity resumed, the loss of jobs suggests persistent adjustment and sustained weakness in some sectors,” he said.

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Kganyago warned that he expects economic and financial conditions to remain “volatile for the foreseeable future”.

“In this uncertain environment, policy decisions will continue to be data dependent and sensitive to the balance of risks to the outlook,” he said.

Reflecting on the impact of the COVID-19 pandemic and its effect on the economy, Kganyago said the virus is not the only challenge facing the economy.

“At this time, the third wave of the virus infection has peaked in South Africa. The virus however is only one of a series of current risks to the economic recovery that include rising inflation, weaker commodity export prices, and the longer term impact of scarring from the pandemic and the July unrest,” he said.

However, the Governor said vaccinations against the virus are key to the recovery of the economy.

“A steady improvement in vaccination rates will sustain confidence and global economic growth, even with expected further waves of the COVID-19 virus. However vaccination rates are lagging in many emerging market and developing economies.

Until populations develop sufficient immunity to curb virus transmission, waves of infection are likely to continue, with ongoing poor economic outcomes,” he said.