Prof Raymond Parsons, an economist from the Business School of the North-West University (NWU), says the decision by the Monetary Policy Committee (MPC) to again leave interest rates unchanged at the level it has been since July 2020 was widely expected.

“It is 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-point rise was due now.”

Prof Parsons says the South African Reserve Bank (SARB) has rightly judged it necessary to provide stability and credibility to a low level of borrowing costs instead for now.

“As the SARB governor said in reply to a question: ‘The SARB cannot outsource its decisions to a model’.”

According to Prof Parsons, the MPC’s latest expectations for growth and average inflation have stayed positive, but with much still also depending on a successful roll-out 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 therefore 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.”

He says monetary policy cannot do the heavy lifting on economic growth. “The main drivers of medium-term growth will 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.”

Prof Parsons concludes that the current economic “rebound” needs to be actively translated into sustained longer-term job-rich growth. “For the time being what South Africa needs overall is cheap money and wise spending.”