Repo rate decision gets mixed reaction
Fin24

Repo rate decision gets mixed reaction

2011-07-21 17:14

Johannesburg - The property industry has welcomed the South African Reserve Bank's (Sarb's) decision to leave the repo rate unchanged.

Dr Andrew Golding, CEO of the Pam Golding Property group, said: "This week's decision to leave the repo rate unchanged was anticipated and welcome as SA's economic recovery remains fragile, with consumers beset by rising costs such as increases in electricity tariffs."

Trade union the United Assocation of SA (Uasa) said the prime interest rates of banks would be lower if the Sarb targeted not just inflation but also employment.

"Research commissioned by the trade union Uasa shows the current prime interest rate of banks would be 1.4% lower at 7.6% instead of the current 9% had South Africa been targeting both unemployment and inflation, as opposed to inflation only," said spokesperson Andre Venter.

His comments came after the bank's decision on Thursday to leave the repo rate unchanged at 5.5%. The prime interest rate would stay at 9%.

The prime interest rate should be equal to the repo rate plus 2.1% instead of the repo rate plus 3.5%, Venter said.

"Alternatively, should the margin of 3.5% between the repo rate and the prime rate be maintained, the repo rate should drop to 4.1% from the current 5.5%."

The research by Professor Carel van Aardt and Johann van Tonder from the Bureau of Market Research at the University of SA was based on the Rudebusch Equation, which targets unemployment and consumer price inflation to determine the optimal prime interest rate.

The Sarb targets inflation only.

The bank's decision was, however, welcomed by Absa Retail Bank chief executive Gavin Opperman, as it would bring relief to indebted consumers.

However, he warned consumers against taking on more debt.

"Consumers should concentrate on using any excess income to consolidate existing debt and start saving."

Business Unity SA (Busa) approved of the decision to keep rates unchanged.

"Busa believes that present economic circumstances require the continuance of an accommodative monetary policy, Busa agrees that interest rates should be left unchanged at this stage," the organisation said in a statement.

Weaker-than-expected retail sales in May showed consumer demand could be losing momentum, while the latest weaker production figures suggested a hesitant economic recovery.

"Taken together with uncertainties around the global economic outlook, Busa concurs with the Reserve Bank that, despite rising cost inflation, a 'wait and see' policy is appropriate until there is stronger evidence of more generalised inflation," Busa said.

The Federation of Unions of SA (Fedusa) said even though interest rates remained steady, it was still concerned about the ever-increasing cost of living.

"Despite interest rates remaining the same, our members will not feel any economic reprieve going forward," said Fedusa general secretary Dennis George in a statement.

The increasing rate of administered prices, such as electricity and municipal rates, was making a dent in workers' disposable income.

"Our Gauteng-based members are also very concerned about the implications and effects that the proposed open road toll system (ORTS) will have on their income and cost of living."

Fedusa had joined the Congress of SA Trade Unions Section 77 protest notice on the toll system, and said further consultation must take place at National Economic Development and Labour Council.

According to Statistic SA as it released consumer price inflation on Wednesday, food and non-alcoholic beverages showed the sharpest rate of increase "meaning that it is more expensive for our members to buy essential food items such as vegetables, oils, fats, bread, cereals, milk, eggs, cheese, and meat", said George.

The union federation was, however, pleased that the monetary policy committee had raised concern about the high increase in executive remuneration.

"The inequality gap is increasing and Fedusa is concerned that high income disparities, coupled with rising consumer inflation and slow economic growth, will hamper South Africa's new growth path (NGP) goal of creating five million jobs by 2020."