SARB Governor Lesetja Kganyago yesterday said that the bank’s Monetary Policy Committee had decided to keep the repurchase rate at its current 14-year high level of 8.25% per annum. File Picture: Oupa Mokoena/ African News Agency (ANA)
Indebted-consumers will have to endure elevated cost of borrowing for a bit longer as the South African Reserve Bank (SARB) maintained its hawkish monetary policy stance on sticky inflation concerns.
SARB Governor Lesetja Kganyago yesterday said that the bank’s Monetary Policy Committee (MPC) had decided to keep the repurchase rate at its current 14-year high level of 8.25% per annum.
Three members of the MPC preferred to keep rates on hold and two preferred an increase of 25 basis points.
Kganyago cited concerns about the continued depreciation of the rand and the ongoing multiplicity of supply-shock pressures on inflation as the key drivers behind the decision.
He said in spite of headline consumer inflation returning to below the upper end of the inflation target range in June, it was expected to rise somewhat in the coming months, before sustainably reverting to the midpoint of the target range in 2025.
“It took a long time for inflation to come down and when it was coming down, it was moving at 0.1 percentage point. It’s only in the middle of July where we saw significant moves of inflation downward,” Kganyago said.
“And as I had cautioned before, the arrival of one swallow does not mean that summer is here. You need to see a little bit more swallows in the sky then you will know the summer is here.
“And as we had seen, the July reading was 4.7% and the August reading was 4.8%, and we expect that September and October readings might be higher, and we have got to take this as it goes.”
As a result, Kganyago said “serious risks” to the inflation outlook were assessed to the upside, with inflation for 2023 now projected to average 5.9%, down from the prior estimate of 6.0%.
For 2024, inflation is seen at 5.1%, up from the earlier projection of 5%.
Kganyago said at the current repurchase rate level, policy was restrictive, consistent with the inflation outlook and elevated inflation expectations.
He then left the door open for further rate hike down the return inflation to the 4.5% midpoint of the target range, saying that the MPC remained vigilant and stood ready to act should risks begin to materialise.
A number of economists welcomed the second pause in monetary policy stance, saying interest rates should remain at current levels over the next few quarters before a shallow cutting cycle is probable.
FNB Chief Economist Mamello Matikinca-Ngwenya said the decision supported the consensus view that the 50 basis points hike implemented in May was the final lift for the current cycle.
“This is consistent with slower headline inflation, which has supported a softening in inflation expectations while wage growth expectations remain subdued,” he said.
“Therefore, tighter lending conditions and weak demand should at least assist with containing demand-driven inflation, even as the headline reflects some supply-side pressures.”
Property groups said the prime lending rate would also remain at an elevated 11.75% per annum, saying that the elevated interest rates were exerting unnecessary pressure and essentially punishing consumers for something beyond their control.
Everest Wealth CEO Thys van Zyl said the high interest rate meant that consumers had to reach even deeper into their pockets with credit card and store debt becoming more expensive and personal loans and car and home payments rising.
Van Zyl said the average salary in the country was also not increasing at the same rate and any further rate hikes would be catastrophic for consumers.
“The interest rate must now be kept stable and then systematically adjusted downwards. Consumers are in trouble and it’s time to protect them before the last straw breaks the camel’s back.
“Any further interest rate increases will simply aim to protect the value of the rand and this is not the solution as political and economic instability bears the blame with consumers ultimately paying the price.”
Meanwhile, the SARB raised growth forecasts for this year to 0.7% from July’s 0.4% while maintaining a 1% forecast for 2024, but noted that energy and logistical constraints continue to threaten the economic outlook.
North West University’s Business School economist, Professor Raymond Parsons, said capital formation, fortunately, seemed to have turned a corner.
“However, various other negative factors in the economy, such as consumer spending being under heavy pressure, suggest that the balance of risks to the growth outlook is instead still on the downside,” Parsons said.
“It again emphasises the urgent need to implement growth-friendly policies and projects.”
BUSINESS REPORT