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Economists Divided: Should The SARB Cut The Repo Rate?

The South Africa Reserve Bank (SARB) is expected to hold the repo rate this week, despite nearly half of economists on Finder’s repo rate panel calling for a rate cut. 

12 of 14 economists (86%) on Finder’s panel say the SARB’s Monetary Policy Committee (MPC) will hold the rate, with just two (14%) expecting a cut.

However the panel is nearly evenly split on what the bank should do. 57% of economists think a hold is the right decision and 43% say the bank should cut the rate.

Antswisa Transaction Advisory Services CEO and chief economist, Miyelani Mkhabela, says the rate should and will be cut given the inflation rate slowed in September. 

“…this gives the SA Reserve Bank an opportunity to cut interest rates by 25 basis points, giving all South Africans additional financial relief for the 2020 year-end,” he said.

Independent economist, Elize Kruger, is the only other panellist expecting a decrease, also due to the improved inflation outlook.

“[The] Inflation outlook has improved somewhat due to indications that medical aid premium increases in 2021 will be about half of the previous year’s and the recent strength in the rand exchange rate should also filter into the liberations in a constructive way, while the economic outlook remains dismal,” she said.

Meanwhile STANLIB economist, Ndivhuho Netshitenzhe, is in favor of a 25bp decrease but is forecasting a hold due to the MPC’s conservatism. 

“The MPC tends to lean on the more conservative side so they have become more reluctant to cut rates anymore because the benefits of it has diminished and they can argue the real rates are now negative so it is very accommodative,” she said.

University of the Free State senior lecturer in banking and finance, Johan Coetzee, thinks the MPC will and should hold, given as an emerging economy it is important for South Africa to have a higher interest rate differential than major economies around the world. 

“This will, at least to some extent, provide a buffer to volatile exchange rate movements. Having said this, there is so much uncertainty in the world today that any seemingly logical policy decision might not have as much traction as was the case in the past.”

If this week’s decision is a hold verdict, the panel is no less divided on whether the next rate move – regardless of when it happens – should be an increase or decrease. 46% of panellists say the next rate move should be a decrease versus 54% who think it should be an increase.

The majority of panellists think the repo rate will increase at some stage in 2021, with just under a third (29%) forecasting the rate won’t increase until 2022 or beyond. When we asked what the repo rate will be at the end of 2021, the median forecast was 3.75%. However forecasts ranged from 3.50%-4.25%.

Property outlook

The panel is forecasting a modest price appreciation for property from now until mid 2021. The panel thinks the national median price will increase by 3% on average. Coetzee is the most bullish on property, forecasting a 10% price gain and IQbusiness Chief Economist, Head of Research Sifiso Skenjana is the most bearish, forecasting a 5% decline.

“I think the property prices will stabilise as the economy continues to digest the medium term impacts and will likely decline between 5% and 7% towards the end of 2021,” Skenjana said.

Mkhabela said the South African Residential property market is attractive and that will continue for the next two decades while commercial property will take time to recover. 

University of Cape Town Graduate School of Business Associate Professor Sean Gossel is expecting a modest price increase of just 1%, flagging that some markets are doing better than others. 

“The recovery and demand is in the low to low-middle housing markets rather than the middle and upper segments, which indicates the extent to which the lock-down will have long-term effects on the middle class. The socio-political instability is also further stimulating immigration sales so these segments are unlikely to recover soon. There is therefore a possibility that the country’s housing market will reflect it’s widening inequality.”

You can find the full report with additional commentary here: