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Consumers will breathe a sigh of relief after the South African Reserve Bank’s Monetary Policy Committee decided to keep the repo rate unchanged at 6.5%.
Despite a stagnant economy, coupled with several external and internal factors, Reserve Bank governor Lesetja Kganyago said the seven-member committee had decided against increasing the repo rate.
Four members voted against an increase while the other three wanted a 25 basis points growth.
“The committee remains concerned about the growing risks to the inflation outlook mainly due to exchange risks related to both domestic and external factors elevated by international oil prices and the possibility of higher electricity tariffs,” he said.
However, he said, demand pressures in the economy were not assessed to pose a significant risk to the inflation outlook.
“The MPC assesses the risk focus to be moderate on the downside,” he said.
The committee, he added, continues to be of the view that current challenges to the economy are primarily structural in nature and cannot be solved by monetary policy.
“Commitment to credible structural policy initiatives and implementation thereof is required to make a marked impact on the cost structure of the economy, potential output and employment. Monetary policy is most effective in addressing fiscal growth,” he said.
Kganyago said the committee would continue to assess the stance of monetary policy to be accommodative.
“However, the MPC remains concerned about the deteriorating inflation outlook, driven mainly by the multiple supply side factors. The approach of the committee continues to look through the first round effects and focus on the possible second round effects,” he said.
With risks and uncertainty at higher levels, he said, the MPC will continue to be vigilant and “will not hesitate to act should it become necessary”.
He highlighted that the business confidence index decreased to 38 index points in the third quarter.
“Growth in gross fixed capital is expected to remain weak. Household consumption expenditure contracted by 1.3% in the second quarter, declining for the first time in two years. In the medium-term, the increase in disposal income is expected to be supportive of consumption expenditure,” he said.
However, household consumption expenditure is likely to be constrained by recent tax changes, weak employment growth as well as subdued credit growth extension to households.
Mike Greeff, chief executive of Greeff Christies International Real Estate, said although the decision by the Monetary Policy Committee to leave the repo rate unchanged came as a huge relief to consumers it would likely receive mixed reactions from economists.
“With the recession a reality, the government has taken the conscious decision to avoid straining consumers even more than they are currently and will be positive in helping people maintain their current bond repayments.”
South Africa is heavily dependent on foreign cash flow and any failure to curb inflation is seen as a government failure by foreign investors, he said.
“A lack of investor confidence has a negative knock-on effect in every other sector of the South African economy.”
Greeff said that the real estate sector was slightly different in that negative local sentiment and slowing of the market is occasionally counterbalanced by foreign buyers looking to purchase here and get maximum value for money.
“Local buyers are also finding themselves in a more stable position. The current buyer’s market enables buyers to better negotiate with sellers on the price of properties. Prospective buyers can be encouraged by the fact that banks also currently have a healthy lending appetite with more bond applications being approved than before, according to bond originator BetterBond,” he said.
– Reporting by SAnews.gov.za and Staff Reporter
