No change in interest rates

Cape Town - New SA Reserve Bank (Sarb) governor Lesetja Kganyago on Thursday announced that the repo rate will remain on hold at 5.75%, citing concern over inflation and a sluggish economy.

FOLLOW LIVE: Rates announcement and reactions

Kganyago, who took over from Gill Marcus on November 7, chaired his first monetary policy committee (MPC) meeting, which is also the last one held for the year.

"Given the lower trajectory of headline inflation and the continued weak state of the economy, the MPC has unanimously decided to keep the repurchase rate unchanged", he said.

The repurchase rate is the interest rate at which the Sarb lends money to commercial banks.

Kganyago said the domestic growth outlook remains subdued.

"Although an improved growth outcome is expected in the third quarter, following the 0.6% growth in the
second quarter, this is off a low base following prolonged strikes in the mining and manufacturing sectors."

He said the mining sector appears to be recovering from the strike affected first half of the year.

"The physical volume of mining production increased by 0.7% in the third quarter compared with the second quarter, and further increases can be expected in the final quarter, as platinum output is still below pre-strike levels."

However, Kganyago pointed out that the month long strike in the steel and engineering industry in July contributed to a contraction in the third quarter.

"Sentiment indicators suggest that the outlook for the sector remains bleak, with the manufacturing confidence index still at very low levels and capacity utilisation rates back at 2011 levels."

The Sarb also further dropped its GDP expectations.

"The bank’s forecast for GDP growth in 2014 has declined marginally from 1.5% to 1.4%, and forecasts for 2015 and 2016 have been revised down from 2.8% and 3.1% to 2.5% and 2.9% respectively."

The interest rate has increased by a cumulative 75 basis points so far. Sarb lifted the rate in January by 50 basis points and in July by 25 basis points.

Keeping the rate steady came as no surprise.

Economist Mike Schüssler, director at economists.co.za, told Fin24 Kganyago would not change the repo rate.

He said people would be watching out for his style rather than any major announcement.

"This is his first announcement, so people will be watching the language and the style very, very closely," he said.

"People will want to see what our new governor does, what he sounds like, what he seems to be pushing as priorities."

Sanlam Investments economist Arthur Kamp said a rise is not likely based on a combination of slowing inflation, soft private sector credit extension and weak domestic demand growth.

The Nedbank Interest Rate Barometer, which considers the factors influencing the MPC's decision, also indicated Sarb will most likely keep the interest rate the same.

It added that future policy direction remains data dependent, specifically on the inflation trajectory and the rand.