The two-day meeting of the South African Reserve Bank’s monetary policy committee (MPC) decided to maintain the repo rate at 9% on Thursday, in line with consensus expectations. The prime overdraft rate thereby stays the same at 12,5%.
Reserve Bank Governor Tito Mboweni said the inflation outlook has improved since the December meeting when the repo rate was increased by 50 basis points. In particular he singled out that food inflation, a major driver of inflation, is showing signs of moderation. Producer inflation has also shown signs of having peaked.
As a result, the upper band of the CPIX inflation target at 6%, is now not likely to be broken. Instead, CPIX inflation is set to peak at an average rate of about 5,6% in the second quarter of 2007.
However, he also pointed out that risks to the inflation outlook do remain and that these developments will be closely monitored.
Nedbank economist Magan Mistry said: ”The unchanged stance is very much what the market had expected. Sets of data leading up to the meeting showed that inflation outlook had improved.”
Commented Mike Schussler, economist at T-Sec: ”I’m glad [the MPC] has kept interest rates unchanged. I’m a bit in disagreement on food prices — when you look at the market, maize is going up — but I suppose interest rates are steady, which is good for consumers out there.”
Colen Garrow, economist at Brait, said the decision was largely as expected. ”The issue is not about inflation, and that’s been proven now. It’s about credit aggregates and what we need to do about that without raising rates.”
Rise may still come
The repo rate unchanged at 9%, it may still raise it later in the year, Standard Chartered Bank warned.
”Our view, given the strength of demand in South Africa and the still-high current-account deficit, is that there are risks to this forecast on a longer-term horizon,” said Razia Khan, regional head of research, Africa, for Standard Chartered Bank. ”Emerging-market sentiment and the risks to the currency will be key.”
Meanwhile, the Federation of Unions of South Africa (Fedusa) welcomed the decision of the bank to leave rates unchanged.
”Fedusa has long believed that raising interest rates will not deter consumer spending, as retailers have developed various loopholes to attract consumers,” said general secretary Dennis George.
”We have to remain ever conscious that in attempting to keep inflation down, and keeping the haves under control by having high interest rates, that we do not inadvertently push the have-nots, and those just above the poverty line, deeper into poverty,” George added.
Property
The announcement that interest rates are to remain unchanged is good news for buyers who want to enter the property market, said Berry Everitt, MD of the Chas Everitt International property group.
”At the same time, nominal growth in house prices declined to 6,9% in January compared to 18,5% in January last year, creating an opportunity for first-time buyers to enter the market,” Everitt said.
He added that stable interest rates would also be welcomed by investors in the buy-to-let market.
”It means that landlords’ share of bond repayments will not increase. And, in many cases, landlords may find that their bond contributions are actually declining thanks to strong growth in rentals.” — Sapa, I-Net Bridge