Repo rate remains at 7%

The South African Reserve Bank (SARB) has announced that the repo rate will remain unchanged at seven percent.

Lesetja Kganyago, governor of the SARB, stated: “While the committee remains concerned about the overall inflation trajectory, the assessment of the balance of risks to the inflation outlook and the weak domestic economy has provided some room to delay further tightening of the monetary policy stance for now. Accordingly the MPC has unanimously decided to keep the repurchase rate unchanged at seven per cent per annum.”

Reactions of the announcement

Following the announcement, First National Bank (FNB) has announced that its prime lending rate will remain unchanged at 10.5%.

Sizwe Nxedlana, chief economist at FNB, said: “The SARB has chosen to keep rates on hold in line with the market and our expectations. The South African economy is undergoing a protracted period of weak growth. This is partly due to exceptionally weak growth in domestic spending that is likely to continue because of ongoing government belt-tightening, low growth in credit extension to households, low consumer confidence and the impact of previous interest hikes.”

DebtBusters, a debt management company, noted that this is some good news for 2016 following a pattern of price increases earlier this year. However, despite this, the increase in the Consumer Price Increase (CPI) yesterday to 6.3% will most likely ‘hurt consumers’ pockets.’

Ian Wason, CEO of DebtBusters noted that he is concerned about the profiles of South African consumers who enquire for financial assistance. “DebtBusters has seen clients require 101% of their net income to service their debt obligations. The rise in the inflation rate will provide added pressure for consumers already living on the bread line.”

Wason added: “The changes to affordability assessments (required for credit providers when assessing whether consumers are eligible for credit) make it harder for consumers to access credit. Although this is a good move by the regulator, consumers who were previously reliant on credit to survive will no longer be able to receive credit very easily, squeezing consumers even further.”

FNB CEO Jacques Celliers, stated: “In South Africa’s current pressurised economic position, the MPC is supporting growth and price stability with considerable skill and composure; it is a great asset in our economy deserving our appreciation. Both stability and policy clarity are critical if we are to encourage higher levels of investment and growth. There are clear opportunities arising in our manufacturing and tourism sectors as there are early signs that both are benefitting from the weaker rand.”

Nxedlana added: “Rand coupled with weak domestic growth, downside risks to global growth and domestic inflation that is likely to moderate in 2017 has significantly reduced the scope for the SARB to hike rates further.”

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