Publications
Partners
Johannesburg - The SA Growth outlook deterioration between the previous meeting of the Monetary Policy Committee (MPC) in July and the meeting on Wednesday is highlighted by a 0.5% reduction in future growth expectations," according to George Herman, head of South African portfolios at Citadel.
"What a difference two months made. Domestic demand is weak and consumption expenditure is clearly under pressure. There are no positives to be seen on this front soon. Export volumes have not responded as positively to the depreciation of the currency as one would have expected," said Herman.
"This will in time prove to be SA’s Achilles heel as structural impediments like inflexible labour and energy constraints prevent exports from responding rapidly to improved pricing."
Global growth prospects have also become precarious due to uncertainties surrounding China’s actual growth and future expectations. The knock-on effects on commodities and other emerging markets are direct and severe, he explained
The rand depreciated by 10% since the previous MPC.
"The Sarb acknowledges the fact that the rand now becomes the biggest risk towards inflation and inflation expectations. As China and commodities cool down, the rand comes under more pressure. US FED rate normalisation also poses a significant threat to the rand and the Sarb’s acknowledgement of this goes a long way to pacify global investors who may act irrationally at that time," said Herman.
"Central banks globally are at the edge of credible policy and try to use ‘open-mouth policy’ to get their stern inflation combat message across, while not raising official interest rates. The Sarb MPC also did this tough-talk no-change tango today and sensibly left the repo rate unchanged at 6%."
In his view this manoeuvre might land them behind the curve should inflation become a reality, but might just prove them to be "brilliantly sensitive" to sluggish growth prospects.
Adrian Goslett, CEO of RE/MAX of Southern Africa, said the decision to keep the rates where they are will be a relief to home owners and consumers who are still coming to terms will the last rate hike and the rising cost of living.
He noted that financial pressure from external sources such as higher food prices, higher electricity and water tariffs and a weaker rand/dollar exchange rate has had an impact on the property market over the last few months.
Consumers are having to deal with their expenses increasing, while their income remains the same. This will make it harder for home owners to hold onto their properties and for potential buyers to get a foot into the market.
"Although the recent lower oil prices could moderate inflation to some degree, the weaker currency against the dollar has caused inflation to edge closer to the upper end of Sarb’s target band of 6%. If this continues, we are likely to see rate hikes in the near future, be it in November or early next year," said Goslett.
“Inflationary pressure will strengthen Sarb’s position to hike the rates. Homeowners and consumers need to prepare for future rate hikes by reducing household debt and increasing savings. While higher interest rates will impact potential buyer’s affordability ratios, the higher rates can also prove to be an advantage to those who are building up their savings for a deposit and other costs associated with a property purchase.”
