Dane McDonald and Carin Smith
Repo rate hiked by 50bps to 6.75% - As it happened
Reserve Bank governor Lesetja Kganyago has announced a repo rate increase of 50 basis points to 6.75%.
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Last Updated at
28 Jan 16:50
David Crosoer, head of research and
investments at PPS Investments: The weak rand has clearly amplified the Monetary
Policy Committee’s concern that inflation expectations have increased
significantly since their November 2015 meeting, despite economic conditions
Despite the adverse impact a rate hike will have on the economy, the MPC felt
it had little option but to raise short term interest rates by 0.5%, given its
expectation that inflation would remain outside the 6% upper band for the
entire forecast period and peak at 7.8%.
The MPC has now hiked interest rates by a cumulative 1.75% since January 2014.
We anticipate that despite the rate hike a number of variables outside their
control could still lead to inflation edging higher than they anticipate.
28 Jan 16:43
Cape Chamber of Commerce and Industry: The 50 basis points rise in interest rates means that most South Africans will have to spend more money on mortgage payments and rent as well as hire purchase instalments leaving them in a poor position to deal with the expected rise in food prices.
"The half percent increase may seem small but it will have far-reaching effects on both business and wage-earners,” said Ms Janine Myburgh, president of the chamber.“We will also have to deal with a possible further increase in electrity tariffs and tax increases in the new budget. The combined effect will create a winter of discontent and hungry days for many of our people.”
She said the drought had made it necessary to import basic foods such as grain and we would now to have to pay for it with rands that have depreciated by about 25% over the last few months.
“We will not get good value for our hard-earned money.” The increased interest rates should be seen as part of a downward spiral in economic activity and, as the cost of living rose, business should prepare for new and probably unaffordable wage demands later this year.
28 Jan 16:40
Fin24 Matsie simply says: The poor will remain poor and the rich will remain rich.
28 Jan 16:40
Sizwe Nxedlana, chief economist at FNB: Despite the weak growth backdrop, the Reserve Bank raised rates at the January MPC meeting in line with expectations. With inflation likely to rise over the course of 2016 and to average more than 6% this year, we expect the Sarbs’s hiking cycle to continue.
The upward trend in inflation will be driven by a combination of meaningful drought-induced food price increases, coupled with sharp increases in electricity tariffs.
28 Jan 16:40
FNB CEO Jacques Celliers: We should all welcome the bold step taken by the Sarb earlier today. While the hike is painful, the severe instability we have experienced in recent weeks had to be addressed as the effects of an unstable currency and rising prices will hurt all consumers.
The rate hike is a firm move to restrain inflation without placing constraints on the economy, but the full effect of the today’s hike will only be felt in coming months and we urge consumers to take a careful review of their budgets as we go into 2016. There may be further rate hikes during the year.
28 Jan 16:38
Fin24 user Daniël Maree has “only one concern”: That the Sarb doesn't have the stomach or the freedom to do what needs to be done. We need a huge hike to calm the waters, anything less is a waste of time and anyone concerned about the potential impact to GDP growth is clearly deluded. We have no real growth to speak of anyway, time for some strong bitter medicine.
28 Jan 16:36
From Fin24 user Ferdi du Plessis: The Sarb should stop mentioning the electricity price increases. They have no control over it. Upping the repo rate will also do nothing to electricity price increases, only cause more electricity inflation as people will continue to use less.
28 Jan 16:34
Marc Joffe, CEO at Global Credit Ratings: Today’s interest rate hike by the Reserve Bank, which follows a recent move by the International Monetary Fund (IMF) to cut its economic growth forecast for South Africa, has contributed to the economy facing “the perfect storm”.
28 Jan 16:24
Fin24 user Louis added his voice to the rates debate: I find it absolutely amazing that the majority of the problems faced, that resulted in the interest rate hike, was caused by the government, yet it is us – the ordinary citizens that are already under tremendous pressure as a result of government’s non-stop wasting of our taxes that once again is hit hardest.
Next month with the budget we, the ordinary citizens, will once again be hit even harder with an increase in taxes. I suppose the way “our government”, and believe me I use the term “our” very loosely, sees it as long as they get their increases and can continue to live on the gravy train they are doing a wonderful job. No wonder the rand and our economy is in such a shocking state.
28 Jan 16:23
Just in from Fin24 user Michael Grummitt: I do not see how increasing interest rates is going to lessen inflation that is caused by drought and the collapsing rand. I have seen an article with a chart that shows no link between increasing interest rates and strengthening rand.
Overseas investors see South Africa as a poorly performing emerging market and a 0.5 percentage point increase in interest surely won't tempt them back. However, it hurts the man in the street who will be able to buy less, leading to further economic decline and lower GDP and further down rating.
28 Jan 16:16
Rand cheers steep rate hike
28 Jan 15:55
Kganyago: That concludes our proceedings of today - until March then.
28 Jan 15:55
Mminele: An element of volatility against this background is, therefore, to be expected. Expect global realignment of currencies.
28 Jan 15:53
Mminele: Also issues of growth in China etc which have influence on our currency.
28 Jan 15:53
Mminele: One should expect some volatility regarding global factors like global growth. There are also questions around rate of interest rate increases in the US, for instance.
28 Jan 15:52
Mminele: Was not our view that the orderly function of markets were threatened.
28 Jan 15:51
MPC Member Daniel Mminele: We do not target the exchange rate but have said previously that if excessive moves in exchange market such that could affect the orderly function, we could try to create order. We have been monitoring developments in the market.
28 Jan 15:51
Brian Kahn of MPC: New debt will be more expensive and consumers with existing debt will pay more.
28 Jan 15:51
South Africa’s sluggish economy means that many consumers will have to tighten their belts this year in anticipation of slow growth and rising costs. According to Jeanette Marais, head of client service and distribution at Allan Gray, consumers can save in a rising interest rate environment, but they must adopt a long-term approach in order to understand the impact of a rising interest rate environment on their pockets.
“While a higher interest rate environment may ensure a better return on one’s hard-earned rands, inflation, if not taken into account, can have a devastating impact on one’s savings. Rising interest rates must be looked at in conjunction with inflation, to ascertain the real impact on one’s savings,” says Marais.
She explains that investments have to grow by more than inflation each year before one can expect to achieve any real return. “Rising interest rates are not necessarily enough to protect your capital over the long term. You therefore cannot be too conservative when saving in this type of environment.”
28 Jan 15:50
Bond originator ooba: The decision today by the South African Reserve Bank to increase interest rates by 0.5% from 6.25% to 6.75% will negatively impact the residential housing markets as many consumers are already facing increasing financial strain through dealing with elevated levels of debt and the rising cost of living expenses.
“Housing affordability will become more constrained for prospective homebuyers as a result of this latest rate increase,” says Kay Geldenhuys, ooba manager for property finance processing. “Prospects of further interest rate increases this year, together with sluggish economic growth and inflationary pressures will result in a slowdown in the demand for residential property.
The repayment on a R1m home loan over a 20 year period will now cost the homeowner an additional R331 a month,” concludes Geldenhuys.
28 Jan 15:43
Kganyago: We are still on a hiking cycle. Any policy changes we would undertake would remain dependent on data. Would the hike stem capital outflows? If it does, great, but we do not target capital outflows. We do not follow the view that to attract capital flows you must hike the interest rate.
28 Jan 15:41
The rand immediately firmed following the announcement to R16.27 from R16.33 while Kganyago was speaking.
28 Jan 15:40
Kganyago: We are not inflation "nutters".
28 Jan 15:40
Kganyago: SA decided to adopt an inflation targeting framework in 2000.
28 Jan 15:39
Kganyago: Inflation targeting is a monetary policy framework that South Africa has adopted. There was a time that Sarb gave the impression that we were targeting the exchange rate, but that turned out not to be a right framework for us.
28 Jan 15:38
Kganyago: We do not focus on the exchange rate, we focus on inflation. No we are not in a stagflation. Yes we can see inflation is rising and we must take a stance to cap rising inflation, but we still do not see the economy contracting. Of course we would like to see growth, but that will require fundamental structural steps.
28 Jan 15:38
Debt Rescue: The announcement by the Reserve Bank that it was increasing the repo interest rate by 0.5% coming on top of proposed 8% increases in electricity rates is going to have a devastating impact on consumers.
There is also a strong likelihood that South Africa’s staple food – maize meal – may increase by as much as 50% which according to experts is going to mean that many South Africans are going to experience hunger.
The depreciation of the Rand which hit all times lows recently is going to increase the price of all imported goods including the five million tons of maize which will have to be imported and then distributed countrywide - some by rail but because of limited bulk rail capacity will probably have to be transported by road.
CEO Neil Roets says the immediate future looks dismal for all consumers but especially for consumers with heavy debt loads.
28 Jan 15:36
DA shadow minister of finance David Maynier MP: The Minister of Finance, Pravin Gordhan's confident assurance that we are not going into a recession is now open to question.
With the Sarb slashing the economic growth forecast from 1.5% to 0.9% for 2016 the economy seems to be at risk of slipping into a recession. All eyes are now on President Jacob Zuma who must use the State of the National Address on 11 February 2016 to announce new measures to boost economic growth and create jobs in South Africa.
28 Jan 15:35
Ian Wason, CEO of DebtBusters, says “This does not bode well for South African consumers, as the Sarb’s decision to increase interest rates means that they will be paying even more toward their debt".
28 Jan 15:35
Dr Andrew Golding of Pam Golding Properties takes a pragmatic view on the repo rate and residential property market. Market sentiment is a key factor which impacts on activity in the residential marketplace, so today’s decision by the Monetary Policy Committee to further increase the repo rate - by 50bps - is likely to create a further dampening effect on housing demand as consumers are already exercising a more conservative and considered approach to both buying and selling, says Dr Andrew Golding, CE of the Pam Golding Property group.
“This increased caution is not surprising as disposable incomes remain under pressure, against a backdrop of rising inflation, further eroded by above-inflation increases in municipal rates and utility tariffs and as economic growth remains stunted.
“The decision to hike the repo rate at this first meeting of the year was widely forecast as the recent rand weakness and concerns about the deterioration in inflation expectations exerted pressure on the MPC to reinforce perceptions that it would take the necessary steps to contain inflation even though the economy is weak.”
28 Jan 15:34
Kganyago: Central Bankers are rational beings.
28 Jan 15:33
Adrian Goslett, CEO of RE/MAX of Southern Africa: As most economists had predicted, the Reverse Bank has announced another rate hike at today’s Monetary Policy Committee meeting, bringing the benchmark repo rate up to 6.75% and the prime lending to 10.25%.
The decision was largely brought about to counter the effects of the depreciation of the rand, along with increased inflationary pressure. The Reserve Bank had made it clear over the course of last year that we are currently in a rate hiking phase and that consumers would need to prepare themselves for this.
The rate increase, along with issues such as poor economic growth, rising food prices due to drought conditions and the possibility of an increase in electricity tariffs will continue to place additional financial pressure on consumers, who will need to make the necessary financial adjustments to endure the tough times ahead.
Future rate increases could be a tipping point for many South African consumers who will no longer be able to service their financial commitments.
28 Jan 15:32
Fin24 user Juan Botha says: Add to that a worthless Rand and higher inflation rate plus capital flight, we really are screwed.
Just about everyone I know (whom can afford and is > 50) has started the emigration process.
Soon there will be very few (and very highly taxed!!) skilled people left in SA.
It appears you cannot tax someone in full for e.g. medical, security & schooling, then expect of them to pay for those AGAIN, on their post-tax income. Feel it people - it is here!
28 Jan 15:30
DebtBusters CEO, Ian Wason: No more wiggle room for consumers to escape their debt burdens.
28 Jan 15:28
By now, consumers should also be aware that this is the first of more hikes to follow. Seeff says that interest rates could rise by as much as a full one to three percent (1%-3%) this year, especially in the event of a credit downgrade to junk status.
Although not good news for consumers, it does send a strong message to the international ratings agencies and investors that the Reserve Bank is serious about kerbing inflation and protecting the value of the rand.
28 Jan 15:28
The decision of the Reserve Bank’s Monetary Policy Committee (MPC) to hike the repo rate by 50 basis points, taking it to 6.75% (up from 6.25%) and the base home loan rate beyond the 10% barrier to 10.25% (up from 9.75%) comes as no surprise according to Samuel Seeff, chairman of the Seeff group.
28 Jan 15:24
REPO RATE INCREASED BY 50 BASIS POINTS
Kganyago: MPC faced dilemma of inflation and worsening growth outlook.
28 Jan 15:23
Kganyago: Upside risk of exchange rate is more or less offset by low global oil prices. Focus of MPC is on inflation expectations. Some indications that inflation expectations have deteriorated. Trend in core inflation shows some indication of second round effects. Core inflation expected to exceed upper end of target band for some time.
28 Jan 15:22
Kganyago: Exchange rate has deteriorated more than expected. Adverse inflation outlook for 2017. Upside risk remains regarding electricity price increases. Potential for further rand weakness in the short term. Lower exchange rate pass through remains a positive impact.
28 Jan 15:21
Send us you concerns and comments on the Sarb rate decision to:
28 Jan 15:20
Kganyago: Recent adverse developments have led to deterioration of food price forecast. Depreciation of rand offset positive impact of low oil price. Possibly 7 cents per litre petrol price increase in February.
28 Jan 15:18
Kganyago: Tighter credit regulations are expected to constrain credit to households. Growth in total unit labour cost slowed marginally in Q3. Average wage settlement rate of 7.7% in 2015. Food prices remain a significant risk to inflation outlook.
28 Jan 15:17
Kganyago: Domestic vehicle sales reflected this weakness. Household consumption expenditure is likely to remain constrained.
28 Jan 15:15
Kganyago: The mining sector remains under pressure in face of weak commodity prices and low demand. Private sector investment has contracted in Q3. Employment forecasts remain weak.