The two-day meeting of the South African Reserve Bank’s (SARB) monetary policy committee on Thursday decided to maintain the repo rate at 9%, in line with expectations.
The prime overdraft rate thereby stays at 12,5% and this decision means the current tightening cycle remains at 200 basis points since it began in June last year.
Analysts felt that if rates were left unchanged, the key signal for the markets would come in the statement, where a hawkish tone and suggestions of potential rate increases down the line would be the main drivers of market action.
As it stands, the statement on Thursday did not appear to contain overly hawkish words and it will now be left to the markets to absorb this.
A derivatives dealer said that if rates had been increased, the equity market would have taken it “badly” as equities generally expected an unchanged position.
In explaining the decision, South African Reserve Bank Governor Tito Mboweni said on Thursday that while the inflation outlook had deteriorated somewhat since the February meeting, the prices of a number of goods had also declined somewhat.
Commented Nico Kelder, economist at Efficient Group: “We are marginally disappointed as we expected a rate hike, but we accept the reasoning for keeping rates unchanged. All in all it’s not a bad decision, although we would have liked to see a rate hike.”
Monica Ambrosi, economist at ETM, said: “It was going to be a difficult decision because of the need to balance the fight against inflation and the fact we might have a stronger currency with higher interest rates.
“The Reserve Bank is aware of the risks, so surely they will be monitoring this closely. They are hoping these will be short-lived. They are taking a risk by not taking action now if the situation deteriorates.”
The MPC’s decision was a “close call”, said George Glynos, market analyst at ETM. “The Reserve Bank is counting on the oil and petrol prices to moderate in longer term. Inflation expectations have also subsided, suggesting that the country has bought into the bank’s effort to reduce inflation.” — I-Net Bridge