South African Reserve Bank (SARB) Governor Lesetja Kganyago.
Image: File
To the surprise of most economists and market analysts, the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) did not lower the repo rate last Thursday.
This came after the inflation rate for February remained at 3.2%, the same level as in January 2024 and the seventh consecutive month in a row that the inflation rate came in under the MPC midpoint level of 4.5%.
Lesetja Kganyago, the governor of the SARB, at the press conference on Thursday, explained, “Moving to prices: while inflation is still in the bottom half of our target range, it has edged higher over the past few months.”
This statement is a bit strange as it can be argued that the inflation rate remained at 3.2% during the first two months of this year. One almost gets the feeling that the MPC strictly followed the US Federal Reserve (Fed) after it kept its bank rate the same as announced the day before.
The MPC considered two scenarios:
From these scenarios, the MPC evaluates that there are upside and downside risks to the inflation rate and therefore decided to keep the repo rate at 7.5%. One might argue that these scenarios will take some months to have their effects and that for now, given the weak economy, the MPC should have decreased the repo rate until such time when the inflation rate starts to move towards the 4.5% level again.
Despite the decision by the MPC, equity prices improved for a third consecutive week, mostly due to gold breaking through $3 000 (R54 697) for the first time, closing Friday evening on $3 316 after reaching a record high of $3 349. The All Share Index (ALSI) on the Johannesburg Stock Exchange (JSE) broke through the 90 000 (90 150) point level for the first time last Wednesday but closed a bit softer (89 519 points) on Thursday after the Fed’s and the MPC’s announcements that they will keep their discount rates the same.
The ALSI is heading to close 7% up for the first quarter of 2025 and gaining 24% over the past year. The rand managed to move sideways, ending 2 cents stronger against the dollar at R18.16 than the previous Friday.
In the US, share prices recovered last week. The S&P 500 ended the week marginally higher with 0.6%. Over the past month (-6.1%) and since the beginning of the year (-3.7%), equity prices reacted negatively to US President Donald Trump’s trade tariff policies. Volumes on Friday jumped to record 2025 levels as investors felt that the Trump tariffs are discounted for.
Domestically, investors and the public await the release of South Africa’s Producers’ Price Inflation (PPI) rate for February this coming Wednesday. It is expected that prices at the factory gate had increased by 1.3% over last February and higher than the 1.1% annual increase in January 2025. This figure may support the MPC’s view that the risk of higher inflation is increasing.
On global markets, investors wait for the announcement of the US on Wednesday of its final estimate of the quarter four (Q4) 2024 Gross Domestic Product economic growth rate as well as the growth rate for the whole of 2024. Expectations are that the US economy grew 2.3% in Q4 against the annual growth rate of 3.2% in Q3. The US will announce its durable goods sales for February on Wednesday and important data on personal income and spending during February 2025 this coming Friday. The UK will release its inflation rate figure for February on Wednesday and retail sales for February 2025 on Friday.
It is expected that the gold price may lose momentum this coming week and that the rand/dollar may depreciate.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
Image: Supplied
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
*** The views expressed here do not necessarily represent those of Independent Media or IOL.
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