Recently, the South African Reserve Bank held its last monetary policy committee meeting for 2019, maintaining the status quo. Despite the widespread expectation of a rate cut, as inflation rate touched a nine-year low, at 3.7% in Oct-19, the MPC kept the country’s key policy rate at 6.5%. Accordingly, we highlight our opinion on this decision and share our outlook for 2020.
Currently, the South African economy is in a delicate position, stuck between igniting economic growth and limiting severe capital outflows. Earlier, the country escaped a downgrade in its credit rating to junk status from Moody’s, but its outlook was revised downward from stable to negative. Bearing the above in mind, we believe the decision to maintain the status quo and not join the global easing bandwagon, must have been spurred by the need to keep foreign investors happy. However, we believe a rate cut will have eased
borrowing costs and soften pressures on the country’s mounting debt.
Looking ahead into 2020, judging by the spread of the policy decision, with two out of five members choosing to cut, the outlook for monetary policy seems commingled but is pointing to an accommodative policy. However, the elephant in the room remains the need for extensive fiscal reforms on the power sector, which could ignite capital investments, and clear the dilemma that monetary policy is encumbered with.
United Capital Plc Research (UCR)
