As expected, the South African Reserve Bank (SARB) has kept interest rates unchanged at 3.5%, with the decision being unanimous. Overall, the tone of the SARB’s statement was fairly balanced.
Despite a better-than-forecast 1Q21 economic growth rate of 4.6%, the SARB cited concerns around the impact of the recent unrest and its ensuing economic damage on investor confidence and job creation.
As a result, the SARB estimates that the unrest has fully negated the better 1Q21 growth, resulting in an unchanged estimate of 4.2% for 2021 GDP growth. Overall, the SARB assesses the risks to SA’s medium-term domestic growth outlook to be balanced.
We note that it is important to remember that high export prices, stronger household incomes, and a somewhat better investment outlook are backed up by generally supportive global conditions, despite ongoing volatility in world markets. However, recent events in the country, their impact on the vaccination effort, a longer-than-expected lockdown, limited energy supply, and policy uncertainty pose downside risks to growth.
Looking ahead, further interest rate decisions by the SARB will continue to be data dependent in the current uncertain environment, and the SARB will seek to look through temporary price shocks and focus on second-round effects.
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