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Interest rate to stay at 5.75% - as it happened

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SARB governor Lesetja Kganyago.
SARB governor Lesetja Kganyago.
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29 Jan 2015

Adrian Goslett, CEO of RE/MAX of Southern Africa:

"As economists expected, it was announced today at the first Monetary Policy Committee meeting of 2015 that the interest rate would remain unchanged. Although former Treasury Director General and now Reserve Bank Governor, Lesetja Kganyago, had said last year that the bank was in a rate hiking cycle, the falling fuel prices and easing of food prices had served to improve the inflation outlook.

The repo rate will remain at 5.75%, with the prime rate staying at 9.25%. Adrian Goslett, CEO of RE/MAX of Southern Africa, says that with the price of crude oil dropping as much as it has, inflation has remained well within the target range, alleviating the need to hike the interest rates. He notes that the interest rate remaining at its current level and fuel prices declining will ease financially burdened homeowners to some degree and allow them to pay down debt or pay additional money into their bond accounts.

According to Goslett, one of the best investments that homeowners can make is by paying their home loan off faster to reduce the amount of interest they pay over the term of the loan. “Although many homeowners may think that it is an extremely difficult task to pay off their home faster, especially with a very tight budget, a few simple financial adjustments can make a large impact,” says Goslett.

“Homeowners will be able to fast-track their path to financial freedom by proactively approaching the situation with the right strategy.” He notes that homeowners can reduce the term of their home loan by adding an extra amount to their monthly instalments each month. An increase of just R500 on a bond of R1 million at an interest rate of 9.25% can save the homeowner R185 719.91 in interest and will cut the term of the loan to 17 years 4 months.

If the homeowner pays an extra R1 000 on a bond of R1 million at prime, they will save R316 703.87 and will reduce to term of the loan to 15 years 5 months. If fuel prices continue to drop and inflation remains low, we could see the interest rate drop at some stage during 2015, despite the warning last year that rates would likely increase. If this happens it will give homeowners a further opportunity to reduce the term of their loan by simply keeping their repayments the same.

Goslett says that banks will normally automatically adjust home loan repayments that are linked to the interest rate, however if the homeowner opts to keep their monthly instalments constant, they will be paying extra money into their bond account, without affecting their budget.He concludes by saying that by cutting years off their bond, homeowners can save large sums of money and thereby ensure that they are financially secure in the future."

29 Jan 2015

Sanlam Investments Economist, Arthur Kamp:

"Despite the sharp fall in fuel prices, which are expected to slow the annual advance in headline inflation to 3.5 per cent in 2Q15, the SA Reserve Bank (Sarb) maintained its focus on the expected long-term inflation trajectory.  

In 2016, Sarb expects inflation to average 5.4% – markedly higher than its forecast average of 3.8% in 2015. Rather than following the near-term headline CPI forecast Sarb has maintained its focus on core CPI, which it expects to average 5.5% in 2015 and 5.1% in 2016. Just as Sarb does not necessarily raise interest rates when oil price spikes push up headline inflation, so does it not necessarily cut interest rates when oil prices dampen headline inflation. This reflects a consistent approach by Sarb to setting its policy interest rate.  

The bank remains concerned that monetary policy normalisation in the US could sustain rand weakness, thus posing upside risk to the inflation outlook (along with firm wage increases).  

Given these concerns, Sarb indicates that unless the expected slowdown in inflation in the months ahead is sustained (and accompanied by a decline in inflation expectations, which it continues to view as uncomfortably high) an interest rate cut is unlikely.  

Overall, the message appears clear. Given current information and expectations Sarb continues to seek to normalise monetary policy over time. The near term slowdown in inflation induced by lower oil prices, nonetheless, provides an opportunity to pause in this process.  

Hence, we expect Sarb to remain on hold for an extended period in 2015."

29 Jan 2015

Mabyanine Phiri, Portfolio Associate at ACM Gold: “A volatile rand due to domestic challenges such as softer export figures, falling commodity prices and in particular power constraints, have weakened growth but eased off inflationary pressure in the economy. Based on these factors the Sarb decided to keep the Repo Rate at 5.75%. As the Fed continues to take a hawkish stance in normalising monetary policy, the Reserve Bank would have to further analyse the effects of both external and domestic factors before they can continue the hike phase introduced last year.”

29 Jan 2015

George Glynos of ETM Analytics: There is no crystal ball to look into. Perhaps we relies too much on econometric models.

29 Jan 2015

George Glynos of ETM Analytics: It shows the futility of relying on forecasts. We place far too much emphasis on things like inflation expectations.

29 Jan 2015

Tendani Matshimuli Liberty economist: If you distill the numbers you will see MPC was taken aback by direction - they did not foresee the drop in the oil price.

29 Jan 2015

Miss the speech? Watch the SABC's recording of the announcement.

29 Jan 2015

Andrew Golding: “However, the benefits of the more benign inflation and interest rate environment may not be enough to positively impact the economic growth outlook. While the slump in oil prices benefits us by reducing the cost of imports, the simultaneous decline in other commodity prices is hurting our exports. And a substantial trade deficit makes the Rand vulnerable to further bouts of weakness. “

29 Jan 2015

Dr Golding says lower inflation and a delay in the timing of the next interest rate hikes is obviously good news for the local residential property market. In recent years, growth in house prices has outstripped growth in personal disposable income – resulting in a modest deterioration of housing affordability. Lower inflation and a subdued interest rate cycle will bolster household disposable income, helping to offset this deterioration to some extent.

29 Jan 2015

Andrew Golding:  “However, with the collapse in oil prices, inflation is much less of a threat globally and locally. In the US, the Fed may be able to delay much anticipated interest rate hikes from mid-year to later in 2015. In Japan and Europe, which are fighting off deflation, monetary policy is now like to be eased further. In South Africa, with inflation surprising on the downside, and with the Fed now likely to delay the first rate hike, the Reserve Bank is now likely to delay the next interest rate hike till later in the year or possibly even until 2016.”

29 Jan 2015

Andrew Golding: “The recent collapse in energy prices is a potential significant game-changer in 2015. Locally, the widely held premise going into the new-year was that growth would strengthen and that the SA Reserve Bank would raise interest rates to contain inflation and to normalise interest rates – especially as the US began raising interest rates. This would be necessary to protect the Rand.”

29 Jan 2015

While generally anticipated by commentators in the market, the decision by the Monetary Policy Committee meeting (29 January 2015) to hold the repo rate steady at 5.75 percent is most welcome - particularly at a time when as a nation we are coping with ongoing power cuts which impact negatively on businesses and individuals alike, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

29 Jan 2015

George Glynos of ETM Analytics: We believe the headwinds around the world will limit extent the US Fed can normalise interest rates.

29 Jan 2015

Tendani Matshimuli Liberty economist: "For me the muted growth rate going forward is the great concern."

29 Jan 2015

Samuel Seeff: "The downward oil price has not only lowered the inflation outlook to about 3.5-4% according to economists, but the fuel and transport savings has added a bit more back into consumer wallets. This, together with the holding off of an interest rate hike is especially important for first time home buyers and an added boost to affordability and demand."

29 Jan 2015

The decision by the Monetary Policy Committee of the Reserve Bank to retain the repo rate at 5.75% (base home loan rate of 9.25%) is a welcome start to what we already expect to be a positive year for the property market, says Seeff chairman Samuel Seeff. "Where we had anticipated starting the year with a potential interest rate hike, the unexpected oil price drop and improved inflationary outlook is of course to thank for the unchanged interest rate."

29 Jan 2015

Tendani Matshimuli Liberty economist: We must create real jobs or high debt levels will remain.

29 Jan 2015

Tendani Matshimuli Liberty economist: We already rely too much on credit.

29 Jan 2015

George Glynos of ETM Analytics: "Problems are structural relating mainly to debt so low interest rates not the main solution."

29 Jan 2015

George Glynos of ETM Analytics: "Very difficult to generate price stability."

29 Jan 2015

Tendani Matshimuli Liberty economist: "There is risk in the system due to weak rand."

29 Jan 2015

Tendani Matshimuli Liberty economist: "We hope labour unrest will settle."

29 Jan 2015

Kganyago said the MPC had for some time emphasised that it was in a process of interest rate normalisation. "We have some room to pause in this process."
FULL STORY

29 Jan 2015

George Glynos ETM Analytics: "MPC seems to say so much to take into consideration that they rather just sit still."

29 Jan 2015

Chief Economist at FNB Sizwe Nxedlana: “The SARB kept rates unchanged at today’s meeting in line with expectations. The monetary policy committee (MPC) of the SARB has increased the repo rate by a cumulative 75 basis points (to a level of 5.75%) since January 2014. For most of 2014, the SARB emphasized the need to gradually normalise interest rates in order to combat the inflation risks posed by a weak and vulnerable Rand. However, following the 55% fall in the oil price since 3Q 2014 risks to both the inflation and exchange rate outlook have diminished. It will be extremely difficult for the SARB to justify any interest rates increases in this disinflationary environment. As a result, we expect the SARB to keep rates unchanged for the duration of 2015.”

29 Jan 2015

“Borrowers now have an open window of opportunity to reduce their debts as lower prices offer an instant cash boost. We should, however, bear in mind the guidance given by the Minister of Finance in his Medium Term Budget Policy Statement regarding the possibility of changes to tax rates in 2015. For this reason, people should stay within their budgets,” said Celliers.

29 Jan 2015

“Consumers have been cheered by lower fuel prices and we are seeing lower inflation on the horizon. We can expect further reductions in fuel prices and inflation during February, but this does not mean we should throw caution to the wind,” advises FNB CEO Jacques Celliers.

29 Jan 2015

First National Bank (FNB) will maintain its prime lending rate at 9.25% following the decision taken earlier today by the SARB Monetary Policy Committee (MPC) to leave rates unchanged until the next MPC meeting in March.

29 Jan 2015

Tendani Matshimuli, Consumer Economist at Liberty Life: "We have seen a moderation in transport inflation due to over the oil price."

29 Jan 2015

DebtBusters marketing manager Kelli Knutsen: For many over-indebted consumers, as well as for business and commerce, this was the wrong decision. “We had hoped to see a rate cut by The Reserve Bank, but we are flabbergasted that it did not happen today. The consumer debt levels in South Africa are still incredibly high and we needed this interest rate cut, so that these debt levels can be reduced to more manageable amounts.”

29 Jan 2015

Riyadh Bhyat: "This chart shows the large decrease in swap rates (decreases between 0.6% and 1.0%) that have taken place between 30 December 2014 and 28 February 2015. This decrease in rates is largely a result of the decrease in CPI inflation to 5.3%, which The Inflation Factory correctly calculated three weeks prior to the official announcement and so was able to anticipate these interest rate moves. "
Riyadh Bhyat: "This chart shows the
large decrease in swap rates (decreases between 0.6% and 1.0%) that have taken
place between 30 December 2014 and 28 February 2015. This decrease in rates is
largely a result of the decrease in CPI inflation to 5.3%, which The Inflation
Factory correctly calculated three weeks prior to the official announcement and
so was able to anticipate these interest rate moves. "<br />

29 Jan 2015

Kganyago: Inflation will remain within our target

29 Jan 2015

“With approximately 50% of South Africa’s credit active consumers in arrears on one or more of their credit agreements, consumers with debt or those on the verge of over-indebtedness received no relief with the repo rate staying still,” says DebtBusters marketing manager Kelli Knutsen.

29 Jan 2015

MPC assumed moderate increases in oil price over next few years.

29 Jan 2015

Kganyago: MPC feels the bar for further accommodation remains high and would require better inflation expectations.

29 Jan 2015

Kganyago: Keep the rate unchanged at 5.75%

29 Jan 2015

Kganyago: For some time MPC has emphasised that we are in a process of interest rate normalisation. We have some room to pause in this process.

29 Jan 2015

Riyadh Bhyat: “It is clear that food prices have not decreased in line with the petrol price,” said Bhyat. “The correlation between food and petrol over 2014 was -45%, indicating a weak negative relationship. Even when comparing the petrol price with individual food categories, as shown below, there is no obvious pass through of this saving to consumers since petrol began decreasing in September 2014.”
Riyadh Bhyat: &ldquo;It is clear that food prices have not decreased in line with the petrol price,&rdquo; said Bhyat. &ldquo;The correlation between food and petrol over 2014 was -45%, indicating a weak negative relationship. Even when comparing the petrol price with individual food categories, as shown below, there is no obvious pass through of this saving to consumers since petrol began decreasing in September 2014.&rdquo;
FULL STORY

29 Jan 2015

Kganyago: Risks are assessed to be moderately on the down side, mainly due to electricity constraints and its impact.

29 Jan 2015

In the graph below the price index of petrol during 2014 is compared with the Real Time CPI calculated by The Inflation Factory, (which has a 99% correlation to the officially published CPI).
In the graph below the price index of petrol during 2014 is compared with the Real Time CPI calculated by The Inflation Factory, (which has a 99% correlation to the officially published CPI).
FULL STORY

29 Jan 2015

Kganyago: Upside risk to inflation outlook remains the higher than inflation wage increases.

29 Jan 2015

Kganyago: Further depreciation of the rand against the dollar could further offset the impact of lower oil prices on inflation.

29 Jan 2015

Kganyago: Relatively muted decline in underlying inflation expected.

29 Jan 2015

Kganyago: Inflation landscape has changed a lot in recent weeks, but outlook for international oil prices remains uncertain.

29 Jan 2015

Kganyago: Bumper maize crop expected this year.

29 Jan 2015

Kganyago: Food prices remain a big part of increasing inflation.
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