Repo rate remains unchanged
The Reserve Bank Monetary Policy Committee met last week to consider and decide on their monetary policy position for the next two months until their next scheduled meeting in May.
Using interest rates as the mechanism by which to control monetary policy in order to fulfill their primary mandate of price stability within the economy the five-member committee decided unanimously to keep the key repo rate unchanged at 6,75%.
The immediate result of this is that the prime interest rate charged by the leading South African commercial banks remained unchanged at 10,25%.
The reason there is this direct link between the Repo rate and Prime interest rates charged by commercial banks is because they are all indebted to the Reserve Bank - it is their source of wholesale funds - the wholesale price of their good (i.e. money), which they as commercial banks then retail to you and me in the form of mortgage finance.
Other key macroeconomic metrics currently highlighted are CPI inflation currently at 4,1% and PPI inflation - Producer Price Inflation or the general cost of goods leaving the factory floor, at 4,7%. This is good news for an economy such as ours as it indicates that inflation is firmly contained within the 3-6% target range and that the PPI rate is not exerting much upward pressure on general consumer prices.
A snapshot of our current key exchange rates are 14.27 Rand per US$, 18,67 Rand per £ and 16,06 Rand per Euro. Since January the Rand has depreciated by 6,4% against the US$, by 5,2% against the Euro and by 6,1% on a trade-weighted basis.
GDP increased by 1,4% in the 4th quarter of 2018, averaging an unimpressive 0,8% for the year. GDP Annual Growth Rate in South Africa averaged 2,76% from 1994 until 2018, reaching an all time high of 7,1% in the 4th quarter of 2006 and a record low of -2,6% in the 2nd quarter of 2019.
The Reserve Bank is predicting GDP growth for 2019 to average 1,3% and the forecast for 2020 is 1,8%.
The risks are currently on the downside making it more likely for lower growth than higher inflation. The Governor of the Reserve Bank said in his report that there was little evidence of demand side pressures in the economy, but that upward pressure on inflation in the medium term could come from cost-push factors such as electricity, fuel and food prices.
As a contrast to the South African economic performance the US economy grew by a year-on-year 3% over the past two quarters. If a R19,390 trillion dollar economy grows by 3% p.a. it means it gains US$581,7 billion per annum.
The entire annual size of our South African GDP - a measure of all that we produce per annum in both goods and services, is only US$349,42 billion. That means the US Economy currently adds the value of 1,6 South African economies per annum at its current growth rates.
Yes that is unbelievable and puts things into perspective.