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South Africa Reserve Bank repo rate forecast report May 2020

SARB Monetary Policy Committee forecast to decrease the rate by around 50bps

Key findings

  • 80% of economists on our panel forecast a rate decrease on 21 May
  • MPC to cut the rate between 25 and 100bps/50bps on average
  • Economy to contract by 7.6% in 2020, according to panel average

The 19-21 May repo rate decision

The Reserve Bank of South Africa’s Monetary Policy Committee is set to decrease the rate at the 19-21 May meeting, according to 80% of the economists on Finder’s panel.

However, while 8 out of 10 economists agree on the rate movement, they are divided by how many basis points they think the rate will move.

Four economists, Investec’s chief economist, Annabel Bishop; professor at the University of Johannesburg, Ilse Botha; professor of economics at the University of the Western Cape, Matthew Kofi Ocran; and associate professor at the University of Cape Town Graduate School of Business, Sean Gossel, forecast a rate cut of just 25bps.

Bishop along with Botha and Ocran think a 25bps decrease is the right move by the MPC, while Gossel thinks the MPC should cut the rate by 50bps.

“The MPC may choose to cut interest rates again to assist debt servicing,” Bishop said.

“It has however already put considerable measures in place to provide monetary support, and markets have since stabilised, the yield curve has lowered and steepened and the dislocation that was occurring in the bond market has resolved.”

Gossel, who also forecasted a 25bps cut, thinks the Bank should cut the rate by 50bps given the unusual circumstances.

“The SARB has to balance setting interest rates that will attract foreign capital but at the same time must ease interest rates to stimulate domestic economic activity. Historically, the SARB has favoured a high interest rate differential to keep the economy moving using international capital flows but these are not normal times.”

Mpho Molopyane, an economist at Rand Merchant Bank, thinks the rate will decrease by 50bps. Hugo Pienaar, chief economist at the Bureau for Economic Research, thinks the rate will drop by at least 50pbs, and Jeff Schultz, economist at BNP Paribas, thinks it will drop by 75bps. Dawie Roodt, chief economist at Efficient Group, forecasts a cut of 100bps.

The panel average suggests we can expect a rate cut of 50bps (rounded up from 47bps).

Jannie Rossouw, Wits Business School interim head at the University of Witwatersrand, and Isaah Mhlanga, chief economist at Alexander Forbes, are the only two panellists who think the MPC will and should hold the rate, arguing previous rate cuts and liquidity have not yet filtered through the economy.

“The SA Reserve Bank has recently announced sharp declines in the repo rate and should first assess the full impact of these decisions,” Rossouw said.

Economic outlook

Finder’s panellists expect the South Africa economy to contract anywhere from 4.8% to 12% in 2020, with an average forecast contraction of 7.6%.

When asked if they agree with the MPC statement that said economic contractions are expected to be deepest in the second quarter of 2020, with some recovery expected in the third quarter of the year, 78% said yes and 22% no.

South Africa’s banking system

We asked panellists if they agreed with Moody’s recent downgrade of the South African banking system from stable to negative – 89% said yes and just 11% (one panellist) said no.

Roodt agrees with the negative rating given “sovereign was downgraded and because bad debt [is] likely to increase”.

Mhlanga expressed a similar sentiment. “The decline in interest rates will reduce interest income; higher unemployment and weak demand will cause higher default rates on bank’s books,” he said.

Botha is the only panellist to disagree.

“The downgrade was due to external factors, the operating environment of the banks, and the risk high government debt pose to banks,” he said.

Expert forecasts

Chief economist at Investec – Annabel Bishop

What the MPC will do: Decrease rate by 25bps
What the MPC should do: Decrease rate by 25bps
Economic contraction in 2020: 4.8%

“The MPC may choose to cut interest rates again to assist debt servicing. It has however already put considerable measures in place to provide monetary support, and markets have since stabilised, the yield curve has lowered and steepened and the dislocation that was occurring in the bond market has resolved…”


Professor at the University of Johannesburg – Ilse Botha

What the MPC will do: Decrease rate by 25bps
What the MPC should do: Decrease rate by 25bps
Economic contraction in 2020: 6.5%

“The SA economy is in a recessionary state which has of late being amplified by the rating agencies’ junk status rating and the COVID-19 pandemic. Therefore, a rate cut will alleviate debt stricken consumers and businesses which could, over time, stimulate consumption in order to boost economic growth.”


Chief economist at Alexander Forbes – Isaah Mhlanga

What the MPC will do: Hold
What the MPC should do: Hold
Economic contraction in 2020: 6%

“Previous rate cuts and liquidity measures have not yet filtered through the economy.”


Associate professor at University of Cape Town Graduate School of Business – Sean Gossel

What the MPC will do: Decrease rate by 25bps
What the MPC should do: Decrease rate by 50bps
Economic contraction in 2020: 6.5%

“The SARB has to balance setting interest rates that will attract foreign capital but at the same time must ease interest rates to stimulate domestic economic activity. Historically, the SARB has favoured a high interest rate differential to keep the economy moving using international capital flows but these are not normal times.”


Economist at Rand Merchant Bank – Mpho Molopyane

What the MPC will do: Decrease rate by 50bps
What the MPC should do: Decrease rate by 50bps
Economic contraction in 2020: No forecast shared

“We expect the SARB to cut interest rates by 50bp at the May MPC meeting and then put rates on hold at 3.75% through to the end of the year. This is slightly more and faster than what is implied by the QPM, but it fits with a reactive central bank trying to walk the tightrope between providing accommodation to an economy in shock at the time of the shock, while still ensuring that inflation does not suddenly skyrocket.”


Professor of economics at the University of the Western Cape – Matthew Kofi Ocran

What the MPC will do: Decrease rate by 25bps
What the MPC should do: Decrease rate by 25bps
Economic contraction in 2020: 12%

“While there have been three rate cuts with two of them since the COVID-19 shock, the subdued inflation rate outlook suggests that there is scope to cut further.”


Chief economist at the Bureau for Economic Research – Hugo Pienaar

What the MPC will do: Decrease rate by 50bps at least
What the MPC should do: Decrease rate by 50-100bps
Economic contraction in 2020: 9.5%

“Combination of very little inflation (headline CPI likely to dip below the lower bound of the SARB’s target) and a historic GDP decline provides sufficient room for the SARB to remain aggressive.”


Chief economist at Efficient Group – Dawie Roodt

What the MPC will do: Decrease rate by 100bps
What the MPC should do: Decrease rate by 100bps
Economic contraction in 2020: 10%

“Very weak GDP and expected falling CPI”


Wits Business School interim head at the University of the Witwatersrand – Jannie Rossouw

What the MPC will do: Hold
What the MPC should do: Hold
Economic contraction in 2020: 5%

“The SA Reserve Bank has recently announced sharp declines in the repo rate and should first assess the full impact of these decisions.”


Economist at BNP Paribas – Jeff Schultz

What the MPC will do: 75bps
What the MPC should do: 75bps
Economic contraction in 2020: 8.5%

“A combination of further GDP growth downgrades which we deem as likely alongside growing evidence that inflation is likely to breach below the SARB’s lower bound of its 3-6% inflation target range means that the bank is likely to be in a position to deliver further substantial monetary easing from its 21 May MPC meeting.”


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