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Send  Share  RSS  Twitter  01 Apr 2015

ECONOMY: SARB Governor Keeps Interest Rate the Same


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Reserve Bank Governor Lesetja Kganyago has announced that the country's repo rate will remain the same at 5.75%.

Kganyago said that rand is expected to remain volatile, but a faster economic growth rate was expected for 2015 at 2.2% and 2.3% for 2016.

"The timing of future interest rate increases will be dependent, as before, on a range of domestic and external factors," Kganyago said in his speech.

"The MPC [Monetary Policy Committee] will remain vigilant and will not hesitate to act in order to maintain the integrity of the inflation targeting framework," he said.

The repo rate has remained the same since September last year, following a 25 basis points increase in July from 5.5%.

"Electricity supply constraint is likely to persist for some time and resulted in downward expectation for output." he said.

According to Kganyago, business confidence has declined to below the neutral level in first quarter of 2015, with decline most marked in manufacturing sector. There was also a decline in the building sector.

"Employment growth has stagnated and is likely to remain low and both retail and wholesale trade sales declined on a month to month basis in January and the outlook remains uncertain," he said.

Inflation likely to rise

Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that the decision to keep the rates unchanged will be welcome news for consumers who are already dealing with ongoing rolling blackouts and the increasing cost of living.

He notes that although consumers enjoyed fuel price cuts during the first three months of this year, the fuel price will once again be increased, placing further financial pressure on cash-strapped households.

FNB economist, Alex Smith, said Inflation is likely to be quite high next year and the prospect of interest rate cuts is off the table - it is simply a question of when it will go up again.

"SA is dependent on short term financial flows and when interest rates start rising in US, commodity prices will be impacted," he said.

Seeff chairperson, Samuel Seeff, has welcomed the decision: "while not unexpected in light of the recent announcement that the inflation rate hit a low of 3.9% [down from 4.4% in January and around 6% late last year], the MPC decision is nonetheless welcome in light of the current economic challenges".

"An interest rate hike right now would have been very difficult given that the economy is facing pressure, not least of which, the current electricity crisis," he said.

"While we are aware that the interest rate is artificially low and that an adjustment is needed in light of the necessity for fiscal consolidation, the current economic state simply does not warrant a hike despite the pressure on the rand".

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