Interest Rates Set to Remain Unchanged

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17 Jul 2013

The Governor of the South African Reserve Bank (SARB), Gill Marcus, will announce the Monetary Policy Committee’s (MPC) decision on interest rates on Thursday, however, economists believe the repo rate will remain unchanged at 5 percent.

Investec says weaker household consumption expenditure and weaker productive sector activity will more likely be the central consideration for the MPC when it deliberates on interest rates on Thursday.

In May, interest rates were unchanged with Marcus pointing to downside risks to local economic growth and upside risk to inflation.

According to Investec economic report, the bank is likely to keep interest rates on hold and prioritise economic growth.

Investec says weaker household consumption expenditure and weaker productive sector activity will more likely be the central consideration for the MPC when it deliberates on interest rates on Thursday.

“We anticipate that the monetary policy will remain growth-centric and that the SARB will keep the repo rate unchanged at 5 percent and maintain its policy stance for the remainder of the year.”

Peter Attard Montalto, executive director, Emerging Markets Economist at Nomura International, says they see rates remaining unchanged at 5 percent again on Thursday.

“We believe the MPC is very focused on the China growth issue as the key new marginal negative external growth risk for South Africa,” he says.  

Montalto explains that China has become the number one export market for a number of commodities and has been instrumental in South Africa’s robust export growth over the past year.

China’s slowdown and the possibility that growth there may be as low as 7 percent this year is a key drag on South Africa, but not a big or sharp enough shock to push the MPC into action in our view, he says.

Montalto says they think the MPC would need to see a much larger external growth shock to cut rates this year (one that overrode any increased inflation risks from a weaker currency in such an environment), while to hike rates it would need to see a meaningful and evidence-based shift in retailer pricing mechanisms or the currency much weaker from here as to shift to the inflation forecast over a decent amount of time.

Furthermore, they still think that the MPC framework will remain constant and the market needs a more sober interpretation.

“Growth forecasts may well be revised down a little further, though we think the MPC has already been more bearish than the SARB staff forecast, so that should be largely irrelevant,” he says.- Denise Mhlanga

About the Author
Denise Mhlanga

Denise Mhlanga

Property journalist at property24.com

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