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Outcome of MPC’s latest meeting was unanimous

by Raymond Parsons: Professor at the NWU School of Business & Governance and a former special policy adviser to Busa.
The MPC’s decision to again leave interest rates unchanged was widely expected and in line with market expectations. Whereas in the past few months the MPC voted 3-2 in favour of ‘no change’ (as opposed to another 25 basis points cut) the outcome of the MPC’s latest meeting was a unanimous decision. It reflects the SARB’s updated assessment of the balance of risks facing the SA economy in which especially inflation remains contained, but where steeply rising administered prices still aggravate cost inflation.

The MPC statement confirmed that both global and domestic factors are currently driving a firm ‘rebound’ in the SA economy this year. The fact that the MPC has raised its GDP growth forecast for 2021 from 3.6% to 3.8% is positive and resonates with revised improved growth expectations from other authoritative sources. The MPC was nonetheless right to emphasise that load-shedding and a highly uncertain electricity supply are very damaging to SA’s economic performance, as well as warning that new waves of Covid-19 would weigh on the growth outlook.

The MPC statement undertook ‘to look through temporary price shocks’. It is still necessary that interest rates stay as low as possible for as long as possible. Business conditions are tough and stability in borrowing costs must remain supportive for now. The downside risks to growth may be greater and upside risks to inflation less than the SARB analysis suggests, especially given weak demand conditions and still low levels of business and consumer confidence.

The MPC statement reminds us that SA still has a long way to go restore national output and employment to their pre-pandemic levels, bearing in mind that the economy was already in recession even before Covid-19 hit the country a year ago. The improved short-term economic outlook is therefore what SA must now move into more sustainable job-rich growth territory in the period ahead by steadily implementing appropriate structural reforms.

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