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Reserve Bank keeps repo rate unchanged at 6%

The South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) kept the repo rate unchanged at 6% per annum, its governor Lesetja Kganyago announced on Wednesday.

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The decision followed a 25 basis point increment in July, the first adjustment in a year.

“The MPC has decided to keep the repo rate unchanged for now,” he said. “The committee will continue to monitor developments closely, and will not hesitate to act appropriately should the risks to the inflation outlook deteriorate materially.”

“The next MPC is in November so we will wait until then to see if we will increase or not,” he said.
“We have a policy whereby we do not have to move step by step with US Fed,” he said. “Our decisions are more about impacts on SA economy.”

“The combination of sharply slowing growth and rising inflation compounds the dilemma facing monetary policy,” he said.

Kganyago said the Reserve Bank’s monetary policy committee remained on a gradual policy normalisation path.

A Reuters poll this week showed 28 of 31 economists expected the repo rate to remain unchanged, saying the South African Reserve Bank would likely wait until November to lift interest rates, amid concerns about sluggish growth.

Only two analysts forecast a 25 basis point increment this week, while one predicted a 50-basis-point hike.

The decision to keep the repo rate unchanged came against the background of a struggling world economy, the Federal Reserve in the US having kept interest rates unchanged last week and the SA economy having contracted in the second quarter on the year, said Jacques du Toit, senior economist at Absa.

“The forecast is for interest rates to be hiked at the last MPC meeting of the year in November and through 2016 in an attempt to contain mounting inflationary pressures from a depreciating rand exchange rate,” he said.

“Currently debt repayments will remain unchanged, which will be a relief to indebted consumers,” said Du Toit. “Banks will continue to monitor economic and consumer-related trends in decisions regarding risk appetite and lending criteria.”

The decision to retain the repo rate at 6% (basic mortgage loan rate of 9.5%) is, while not unexpected, nonetheless a most welcome move according to Samuel Seeff, chair of the Seeff group.

This follows on the good news that inflation has held steady at 4.6%. He said the MPC decision should be seen as the appropriate decision for the economy and property market right now.

“In any event, the July rate hike did little to stem inflation or protect the rand that went into free fall soon after the announcement,” he said.

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“Home buyers with mortgages or seeking credit will have greeted with relief the news that the MPC meeting today announced its decision to keep the repo rate steady at six percent instead of implementing a further hike,” said Dr Andrew Golding, chief executive of the Pam Golding Property group.

“Many felt that the recent increase of 25 basis points implemented following the previous committee meeting in July was premature, especially given South Africa’s weak economic growth,” he said.

“With inflationary pressures stemming from external factors, including rand weakness, drought and state administered prices, a further interest rate hike would do little to contain these price pressures, but would rather negatively impact much-needed economic growth.”

Fin 24

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