No rate hike: consumers safe for now

The new South African Reserve Bank (SARB) Governor, Lesetja Kganyago, announced today that repo rates will remain the same at 5.75%, which means that the prime lending rate remains 9.25%.
 
"The Committee remains of the view that interest rates will have to normalise over time. However, given the lower trajectory of headline inflation and the continued weak state of the economy, the MPC has unanimously decided to keep the repurchase rate unchanged at 5,75% per annum at this stage," said Kganyago.
 
Some commentators welcomed SARBS decision. "The decision is a great relief to South African property owners. The relatively low interest rate environment that continues to prevail is good news for the residential housing market as it gives prospective homebuyers an opportunity to acquire property and secure home loan finance at an affordable cost of credit," says Kay Geldenhuys, ooba's property finance processing manager.
 
Sean McCalgan, market analyst at Econometrix said "that this [rate decision] is the cautious response from the bank. "And it gives you that sense that they want to give the image of being protective of inflation projector while not being too harmful to growth," said McCalgan.
 
The right decision?
 
Even though this no-hike is a welcome announcement to many consumers, especially seen as the festive spending is starting, McCalgan believes that the decision not to hike rates was not the correct one.
 
"In our view we have seen the hiking cycle as being too slow and already being behind the curve, which is a view that is not shared by the broader market. We think that many of the risks that have started to characterise the Rand for some years now have been brought about by monetary policy that is inadequate and too loose for the prevailing circumstance. So, yes, we think they should have been hiking more and earlier," said McCalgan.
 
McCalgan accused the Monetary Policy Committee (MPC) of not being "proactive" and did not see the Rand risks in the same light that they did. "They are rather very reactionary to the way it trends and simply just making those policy decisions on when the Rand forces them to," said McCalgan.
 
This reactionary decision some say is basedon what was happening abroad, particularly in the US how its economic actions affects the Rand and South Africa as a whole. The US is expected to increase rates next year and some believe that South Africa will have no choice but to follow suit.
 
"Although the general expectation is that the USA Federal Government (US Fed) will begin raising interest rates in mid-2015, there are also some expectations that the more benign inflation outlook could delay this. Forward guidance from both the Bank of England and the US Fed is that any adjustment is likely to be gradual, and policy rates may be lower than their estimated long run normal rates for some time despite the improved growth outlooks," said Kganyago.
 
More women on the committee?
 
Ending off the announcement, a question was posed to the governor as to when there would be a new deputy governor. Kganyago responded that the president needs to apply his mind to finding someone new.
 
The question of whether or not there would be another woman on the MPC was also raised. Kganyago reminded everyone that when Marcus was governor no one asked her about gender equality on the committee.
 
Justmoney's thoughts:
 
The repo rate remaining at 5.75% is welcome news to many consumers especially those who are in debt. It means that loans will not become more expensive. But a rate hike in the future seems inevitable. If McCalgan is right, then the reactionary decision made by the MPC will not be good in the long run.