Repo rate pause continues

Economists and citizens alike released a sigh of relief as the South African Reserve Bank (SARB) governor, Lesego Kganyago, announced the decision to keep the repo rate at seven percent. This in conjunction with the mention that we may be close to the end of the rate hiking cycle, was welcomed.

“Given improvements in the inflation forecast, the weak domestic economic outlook and the assessment of the balance of risks, the MPC (Monetary Policy Committee) has unanimously decided to keep the repurchase rate unchanged at seven per cent per annum,” stated Kganyago.

The local growth economic outlook also proved a key point as SARB increased its forecast for 2016 from 0% to 0.4 %. 

Industry response

The Old Mutual Investment group was in agreement that this all signalled good news.Chief economist, Rian le Roux, stated: “The Reserve Bank’s decision to keep interest rates unchanged following the monetary policy committee (MPC) meeting this week is consistent with expectations. With the inflation peak – 7% in Feb 2016 – likely behind us, we think the rate hike cycle is done, barring a few scenarios.”

The scenarios being if there is a sustained slowing in global growth and if US rate hike before year end. But even with these scenarios in play, le Roux remained positive about the outlook for the rest of the year and 2017.

“With the Rand currently firm, demand weak and grain prices falling, inflation should ease in 2017, after rising for base effect reasons in the second half of 2016. We think conditions might well fall in place for the SARB to start considering lowering interest rates later in 2017,” stated le Roux.

South Africans have since last year November already experienced a total interest rate increase of 100 basis points (one percent).

Contributing factors to the rate cycle

“The committee is aware that a number of the favourable factors that have contributed to the improved outlook can change very quickly resulting in a reassessment of this view. The bar for monetary accommodation, by contrast, remains high, as the MPC would need to see a more significant and sustained decline of the inflation trajectory to within the inflation target range,” added Kganyago.

The governor proceeded to also highlight the factors that have had a negative impact economically one of them being Brexit and the credit ratings reviews that South Africa have undergone in the last few months.

Other factors included the severe ongoing drought and the subsequent effects it has had on the food and fuel prices, both locally and internationally. With South Africa having just come through a steep food price inflation cycle, Kganyago highlighted the need to keep an eye on this significant driving factor.

“The MPC assesses the risks to the inflation forecast to be more or less balanced at this stage. The current level of the Rand is stronger than that implicit in the forecast, and, in conjunction with continued low levels of pass-through from the Rand to inflation, the risks are assessed to have moderated somewhat. However, some of the positive factors impacting on the Rand may be temporary, and the Rand remains vulnerable to both domestic and external shocks,” Kganyago said.

Property market and Bank response

Welcoming today’s decision by the MPC to hold the repo rate steady, Dr Andrew Golding, chief executive of the Pam Golding Property Group, said that South Africa’s housing market continues to demonstrate maturity and ongoing resilience.

“The fact that interest rates have levelled off and remained stable following these last two MPC meetings sends a positive message to home buyers and the residential property market in general.

“Following the recent successful elections this is a further confidence boost for our economy and for those with existing mortgages or seeking finance for residential property acquisitions.”

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa similarly embraced the news, as he added: “An increase in the interest rate would only place further financial pressure on consumers who are already strapped for cash. Hopefully the Reserve Bank’s hiking cycle has come to an end for the time being and consumers can use this window to sort out their financial affairs.”

Banks were in agreement as First National Bank (FNB) were of the first to respond by announcing that in light of the stayed repo rate their prime lending rate too would remain the same.

“FNB will maintain its prime lending rate at 10.5% following the decision earlier taken today by the South African Reserve Bank (SARB) Monetary Policy Committee to leave rates unchanged until the final MPC meeting for 2016 on 24 November. The decision applies to all prime-linked accounts.

“We are seeing a gradual recovery in business activity from a sharp contraction earlier in the year,” said FNB CEO Jacques Celliers.

Debt management

While this undoubtedly echoes good news for the consumer, times are still tough.

“South Africans still remain under financial pressure despite the repo rate not changing due to the current political turmoil which is not expected to change in the interim. The National Credit Regulator crackdown on reckless lenders, new amendments to the NCA and the decrease in the cap of unsecured interest rates has credit providers reducing the amount of credit being lent, which has left consumers with very few options.

“Many continue to borrow and take out debt from expensive, unscrupulous lenders in the marketplace. This leaves them in a more vulnerable position and forces them to seek the help of debt management experts, who can offer them the relief they require. Financial education is key for most consumers to reduce the levels of over-indebtedness in the country,” stated Ian Wason, chief executive officer of DebtBusters.

The Rand was trading at R13.46 against the US Dollar ahead of the announcement.

  Handy tip: If you are feeling the brunt of the steep cost of living and struggling to pay your debt on top of it, why not sign up for debt counselling with Justmoney’s partner, DebtBusters. Click here, for more.