01 JUN 2021
MPC: SA needs cheap money and wise spending
The MPC’s decision to again leave the repo rate unchanged at the level it has been since July 2020 was widely expected and in line with market expectations.
The MPC appears to be in no rush to raise rates, despite the projection by its Quarterly Projection Model that a 25 basis points rise was due now. The SARB has rightly judged it necessary to instead provide stability and credibility to a low level of borrowing costs for now. As the SARB Governor said in reply to a question: ‘The SARB cannot outsource its decisions to a model’.
The MPC’s latest expectations for growth and average inflation have stayed positive, but with much still also depending on a successful rollout of the vaccination programme and whether a third wave of infection may lead to renewed lockdowns. Given the current balance of risks in the economy, the case for keeping borrowing costs low for as long as possible thus remains strong. Even a small premature rise in interest rates could jeopardise what is still a vulnerable economic recovery and should be avoided for as long as circumstances permit
Yet monetary policy cannot do the heavy lifting on economic growth. The main drivers of medium-term growth will nonetheless still need to come from pushing hard on infrastructural projects, steadily implementing necessary economic reforms, fiscal sustainability and providing energy security sooner rather than later. The current economic ‘rebound’ needs to be actively translated into sustained longer-term job-rich growth. For the time being what SA needs overall is cheap money and wise spending.
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