December 13, 2018


Economists satisfied repo rate remained unchanged

Reserve Bank governor ... Lesetja Kganyago

Reserve Bank governor … Lesetja Kganyago

Economists yesterday expressed satisfaction that the South African Reserve Bank (Sarb) had left its benchmark repo rate unchanged at seven percent per annum though they wished it could have been reduced.

Reserve Bank governor Lesetja Kganyago announced that the Monetary Policy Committee (MPC) remained of the view that the current level of the repo rate was appropriate for now and and that the country was at the end of the tightening cycle.

He said the MPC assessed the risks to the inflation outlook to be more or less balanced. Headline inflation in April was lower than expected, largely related to the pace of food disinflation.

Reacting to the announcement, executive of research and investments at PPS Investments, David Crosoer said it was expected that the MPC would leave interest rates unchanged despite an improving inflation outlook.
“While there were some grounds for increased optimism, continued domestic political uncertainty and the prospect of further US rate hikes gave the MPC little choice but to err on the side of caution,” Crosoer said.

“While short-term base effects are helping bring down inflation, it’s clear that South Africa’s political putsch in late March structurally raises the prospect of higher inflation, as the new Finance Minister, Malusi Gigaba, appears far more sympathetic to increased government expenditure than fiscal restraint.”

Crosoer said it was almost impossible to determine how different the MPC’s decision might have been had Pravin Gordhan remained the Finance Minister.

“There is little doubt however that had South Africa its investment grade rating and confidence in its institutions it would have been better placed should global sentiment turn against emerging markets. We remain prepared for a bumpy ride, and consequently our portfolios are sensibly and appropriately diversified,” Crosoer said.

FNB chief executive, Jacques Celliers, was more optimistic, saying that the possibility of rate cuts in future has improved markedly. “Demand for credit and overall levels of business activity remain subdued and these trends add impetus to rate cuts in future.

Encouraging trends in agriculture and commodity prices will lift our economy in coming quarters and this can be amplified by lower rates,” Celliers noted.

“I fully agree with the Governor of the Reserve Bank that there is no currency or investment case to be made in support of higher rates. If we can lift economic activity and employment, South Africa will become an attractive destination for investors without higher rates.”

Sizwe Nxedlana, chief economist at FNB said the Sarb erred on the side of caution as the balance of risks to the inflation outlook remains tilted to the upside.

“While the notable deceleration in headline inflation and the moderation in core inflation suggest that inflation is becoming less of a concern, renewed exchange rate weakness and elevated inflation expectations threaten this outlook,” Nxedlana said.

“We continue to believe that the bank has reached the peak of the hiking cycle, and will wait for risks to lean more towards the downside before reducing the policy rate.”

Nxedlana said event risks locally remained though as the country heads into the African National Congress elective conference and await S&P Global and Moody’s sovereign rating reviews.

Meanwhile, chief executive of Pam Golding Property group, Andrew Golding said a reduction of repo rate would have provided a much-needed boost for consumer confidence and market sentiment given the ongoing weak economic growth.

Golding said the reduction would also have provided added incentive for savvy first time buyers wanting to gain a foothold on the property ladder.

“While we await the ratings announcement from Moody’s, the third major global ratings agency, and against the backdrop of volatile socio-political factors and slower national house price inflation, the residential property market overall, remains strongly resilient,” Golding said. – African News Agency

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