Consumer relief at repo rate decision
Experts say SA economy risks further inflation, future hikes
DESPITE a tough year, the Reserve Bank’s decision to keep the repo rate unchanged has come as a welcome relief to consumers say experts. Tumisho Grater, economic strategist at Novare, said the domestic growth outlook remained restrained as the Monetary Policy Committee (MPC) held the view the worst was over, as evident in the recent South African leading indicator.
“Given the recent political and economic developments the SARB governor, Lesetja Kganyago, stated that the emerging market outlook has become more uncertain.
“The impact of a stronger dollar is likely to lead to a global realignment of exchange rates, which will have an impact on the rand. A depreciation in the local unit may lead to inflationary pressures and, as the governor highlighted, this will then mean that policy will have to act.”
Arthur Kamp, investment economist at Sanlam Investments, said the Reserve Bank had indicated it considered the risk to domestic inflation to be skewed moderately to the upside. “Sadly, this implies that although we can hope, we cannot yet signal the top of our domestic interest rate hiking cycle. It seems the best we can hope for on current information is that the Reserve Bank remains on hold for an extended period.”
Maura Feddersen, economist at KPMG South Africa said the Reserve Bank would keep a watchful eye on developments in the US, in particular the degree of US monetary tightening expected over coming months. “The depreciation of the rand implies increased risks of higher import prices and potential second-round inflationary impacts, which may prompt the SARB to delay interest rate cuts until the inflation outlook becomes firmly rooted in the target band of 3 percent to 6 percent.”
David Crosoer, executive of research and investments at PPS Investments said South Africa was especially vulnerable to a weakening rand on the back of greater global uncertainty, particularly if, early next month, the country was downgraded and the US hiked interest rates.
“In uncertain times like these, we continue to recommend that investors remain diversified so as not to expose their investments to only one particular outcome materialising. This will allow them to better manage the inevitable volatility that is likely to occur and help them stick with their long-term investment plan.”
Damon Sivitilli, head of marketing at DEBTBUSTERS, said the South African labour market had lost over 470 000 jobs this year, leaving these households in a worse-off position.
“The economy is growing below projections and all South Africans need to be financially savvy with the income they get by creating realistic budgets and sticking to them. Saving is not the easiest of tasks, but starting small and being consistent will prevent many consumers from borrowing in emergencies.”
Samuel Seeff, chairman of the Seeff Property Group said the decision yesterday by the Reserve Bank’s MPC to keep the repo rate at 7percent and home loan base rate at 10.5percent for the fourth successive meeting was a welcome reprieve for the economy and the housing market.
“The flat rate will be a boost for the economy and will allow buyers and home owners to benefit from the savings for a while longer. There is no doubt 2017 will be challenging with an underlying current of fiscal consolidation, increasing costs and inflation and growing pressure on consumers, home owners and buyers.”
THE ECONOMY IS GROWING BELOW PROJECTIONS AND ALL SOUTH AFRICANS NEED TO BE SAVVY