The prime interest rate is to remain unchanged at 10,5% after the South African Reserve Bank opted on Thursday to keep the repo rate, at which it lends money to commercial banks, at 7%.
This was announced by Reserve Bank Governor Tito Mboweni on Thursday afternoon after a two-day meeting of the bank’s monetary policy committee (MPC).
It followed the surprise 50 basis-points cut at the MPC’s previous meeting in April.
The decision to keep rates unchanged was the unanimous expectation of economists surveyed by I-Net Bridge and mirrors similar non-action by the central banks of Australia, New Zealand and the United Kingdom this week.
This was the ninth consecutive meeting at which the majority of economists forecast no cut in rates, but in August last year and April this year, the Reserve Bank did cut rates by 50 basis points.
The no-change forecast was despite the fact that CPIX inflation (headline inflation excluding mortgage costs) has been below the midpoint of the Reserve Bank’s inflation target range of 3% to 6% year-on-year for 16 out of the past 19 releases.
The exceptions were 5% in June last year, 4,8% in February last year and 4,6% in November last year.
The latest available data is for April this year at 3,8%, but economists forecast an easing in the June CPIX rate due to a drop of 16 cents a litre in retail petrol prices.
The recent volatility in the rand has concerned economists as the rand went from below R6 per dollar to almost R7 per dollar. The optimists say that all this has done is provide a buying opportunity for foreigners, who expect the rand to strengthen back towards the R6 per dollar level as the proceeds from the Barclays purchase of Absa enters South Africa.
The 16,3% move in the rand from a best level of R5,9750 per dollar on May 9 to a worst level of R6,9538 on June 1 has spurred net foreign purchases of South African assets.
Last week President Thabo Mbeki said the rand’s value is basically determined by the market, and he said that remains the government’s policy.
”We certainly are not thinking in any way of finding huge resources to keep the value of the currency at a particular rate,” Mbeki said on June 1 while on a state visit to the United States.
Economists react to rates decision
Colen Garrow, economist at Brait, said: ”The cut was generally expected, considering oil prices and the volatility of the rand. I don’t expect the MPC’s announcement to have any significant impact on the markets. Although they were on hold in anticipation of the announcement, I expect it will have a net neutral impact.”
Said Mike Schussler, economist at T-Sec: ”The decision is as expected. I think it is going to be good for the rand, but neutral for the bond market and equities. If we keep this neutral monetary stance, this will be positive for the country’s economic growth.”
Dawie Roodt, chief economist at the Efficient Group, commented: ”For a change, the Reserve Bank’s [view] and our view on the economy seems to be the same. I think it was the appropriate decision. [Mboweni] is still painting a pretty picture about inflation going forward, so if you listen to what he has to say, a further fall in rates in the next few months is not impossible.”
According to Magan Mistry, economist at Nedcor, the decision was as expected.
”The recent weakness of the rand and other strong data are probably the reasons why the MPC kept the repo unchanged. There is a chance that the MPC could cut the repo by 50 basis points in August,” said Mistry. — I-Net Bridge and Sapa