Reserve Bank keeps repo rate unchanged

South African Reserve Bank governor, Lesetja Kganyago, has announced that the Monetary Policy Committee will keep the country’s national interest rate unchanged.

He said that the committee was split 3/3 between a 0.25% cut and those in favour of keeping the rates on hold

In July the SARB reduced its key rate to 6.75% from 7% in a surprise move to boost an economy in recession. Since then, new data has shown that South Africa’s economy grew by 2.5% in the second quarter of 2017, following two successive quarters of decline in Q4 2016 and Q1 2017.

The prime lending rate is currently at 10.25%.

Out of 21 economists surveyed by Bloomberg, 17 predict a quarter-point reduction to 6.5% while one, Colen Garrow at Meganomics, predicted officials would deliver a half-point cut.

Kganyago said that the domestic economic outlook remains strained, while the rand remains sensitive to weak economic growth prospects, sovereign rating downgrades and political developments.

He said that the underlying weakness of the economy is evident in contraction in gross fixed capital formation, particularly from the private sector, which he warned would see more job losses.

Moreover, investment trends did not bode well for employment creation in the country

“In light of the deteriorating assessment of the balance of risks, the MPC has decided to keep the repo rate unchanged at 6.75% per annum,” Kganyago said.

Samuel Seeff, chairman of the Seeff Property Group, said that the decision to retain the repo rate “is very disappointing for the economy and property market”.

“At a time of poor business confidence and weak economic growth marred by political instability, a further rate cut would have been an important boost for consumers and the market,” he said.

Seeff said that there was certainly every reason to expect a rate cut given the better than expected economic growth of 2.5% in the last quarter and the relative stability of the inflation rate in the targeted 3%-6% range.

“While the rand continues its volatility, we have not seen any drastic fluctuation recently and Seeff therefore believes that a rate cut would have been the correct decision.”

Seeff further pointed out that it is vital to restore economic and political confidence if we are going to get the economy back onto a growth trajectory necessary to create the jobs needed to addresses poverty.

He said that consumers are struggling. John Loos from FNB’s latest Property Barometer pointed to a further rise in the debt-to-disposable income ratio and hence a higher risk of inability to service the debt.

While the overall property market is still in a much better place than what it was following the 2007/8 Global Housing Crisis, Seeff said further that the persistent weak economic fundamentals is bearing down on the property market. Much of the liquidity is now out of the market and it is becoming harder for agents to transact.

Properties are taking longer to sell and buyers are hesitant. Serious sellers need to revisit their price expectations.

Read: South African economy climbs out of recession

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Reserve Bank keeps repo rate unchanged