SARB MPC keeping repo rate unchanged benefits agriculture

On 19 November, the South African Reserve Bank (SARB) Monitory Price Committee (MPC) met and kept repo rates unchanged.

For the MPC, the slow economic recovery due to the impact of COVID-19, was one of the factors SARB left the repo rate unchanged.  

SARB Governor Lesetja Kanyago said the second quarter GDP outcomes were expected as most economies were massively in the negative.

“Third quarter recoveries have generally been robust and economies will continue to recover in the fourth quarter” he said.

To some in the agricultural sector, leaving the repo rate unchanged was welcomed news especially heading into the new crop season.

“This implies limited upside for rates but also no further cuts in the medium term. Lower rates for longer especially as we head into the new crop season with increased demand for credit bode well for the agriculture sector” said senior agricultural economist at FNB Paul Makube.

In maintaining the repo rate, the MPC said it did not want to destabilise the weak economy but rather, preferred to maintain the sluggish growth and the weakened currency.

SARB revised its third quarter GDP growth forecast up to 50.3% quarter on quarter, seasonally adjusted and annualised.

Kanyago said: “the growth rate for the full year is now expected to be -8.0%, compared to the contraction of 8.2% expected at the time of the September. South Africa’s terms of trade remain robust. Commodity export prices are high, while oil prices remain generally low.”

Statistics SA GDP second quarter saw agriculture contributing the most with overall 0.3% points thanks largely to the citrus exports. According to the Bureau for Food and Agricultural Policy (BFAP), this was an increase of 15.1% from quarter 1 to quarter 2 of 2020.

“Export volumes for Q2 increased by 33% for oranges, 43% for soft citrus and 44% for lemons and limes. Prices were also higher due to both local and international demand for Vitamin C in light of Covid-19” BFAP noted.

BFAP projected that the agricultural performance will continue to remain strong in Quarter 3 and 4.

According to Makube, buoyed by lower fuel prices the announcement will further boost confidence in the agricultural sector and “provide an opportunity for farmers to do the necessary refurbishments and replacement of machinery and equipment.”

In the second quarter, the low rates benefitted the dried fruit industry which saw an unexpected production increase of 62% year on year.

BFAP: “this was due to an 8% increase in production, combined with higher prices due to the weaker Rand. Consumer preferences for products with a longer shelf life through lockdown also supported the demand for raisins.”

Kanyago further said electricity and other administered prices still remained a concern for the MPC but was encouraged that the local food price inflation was expected to be contained.

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