Rate cut hope lives on

Johannesburg - Business and labour leaders have expressed disappointment with the decision on Tuesday to leave the repo rates unchanged at 7%.

But remarks made by SA Reserve Bank (Sarb) governor Gill Marcus have sparked hope that interest rate cuts could still be on the cards this year.

Business Unit SA said it was disappointed with the latest decision as business and consumer confidence were still at low levels.

But it acknowledged that the inflation risk posed by much higher Eskom tariffs was "a real one", which hopefully would be resolved by the time the MPC held its next meeting.

The labour union Uasa said in a statement that many South Africans are struggling to support their families without a regular income.

"A drop of just 50 basis points would have eased their burden."

The latest rate decision was also bad news for the property market, said Colliers Residential.

"This leaves the prime rate at 10.5 percent, which is still too high to stimulate the property market," said Brian Falconer, CEO of the property group.

However, there are indications that relief may be on the way.

Marcus said the decision to keep rates steady had not been an easy one, reports Svetlana Doneva.

"There are a number of strong views towards cutting rates among the members of the Monetary Policy Committee," said Marcus.

Chief economist at ETM George Glynos said rates cuts could happen in May, especially if economic growth remained weak.

"I think that chance is alive and well and we could still get one more cut of 50 basis points for now," concurred Brait chief economist Colen Garrow.

On the flipside, other economists maintained that the central bank should keep rates unchanged. This is in line with the MPC's forward-looking approach to monetary policy.

"At this point of the recovery, keeping the rate unchanged is the right thing to do to," said Nedbank economist Nicky Weimar.

Eskom factor

Sarb's chief concern at the moment is the inflation risk of Eskom tariff increases.

The country's power utility has requested a 35% per annum price hike, to be implemented over the next three years, to finance its expansion programme.

The National Electricity Regulator of South Africa will announce Eskom's tariff increase in February.

Sarb has factored in a 25% electricity increase in its inflation forecasts. Marcus said the MPC is "extremely concerned" about the direct impact of the hike, as well as its second-round effects on the economy.

"Don't underestimate these risks," she said.

- Fin24.com