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Economists' surprised reaction at SARB rates decision

Sep 22 2017 06:30
Jan Cronje

Cape Town - Economists were largely surprised by Thursday’s decision by the SA Reserve Bank’s  Monetary Policy Committee (MPC) to keep interest rates unchanged at 6.75%. 

Before SARB governor Lesetja Kganyago made the announcement at a media briefing at 15:15, there was a broad consensus among economists that the MPC would drop rates by 25 basis points. 


Tinyiko Ngwenya, an economist at Old Mutual Investment Group, said SARB’s move was unexpected. 

“The call was pretty close as three members voted for a cut while three voted for rates to remain unchanged, which meant the chair of the MPC made the final call,” said Ngwenya.

“In our view this was the perfect opportunity for SARB to cut the repo rate as the inflation profile remains subdued; the rand has been relatively stable since their last meeting and household credit growth remained negative in real terms, reflecting weak domestic demand,” she said.  

Ngwenya said it would be difficult for the SARB to cut rates in November as this would be too close to the ANC elective conference.

In a statement following the decision, Sanisha Packirisamy, economist of Momentum Investments, said the investment group had also expected a 25 basis point cut in rates.

She said that, given that the rates remained unchanged on Thursday, Momentum Investments now expected a cut of up to 50 basis points  - or two interest rate cuts of 25 basis points each - before the end of the first quarter in 2018.

She said the timing if these expected cuts would depend on the outcome of the government’s October 2017 mini budget, reviews by ratings agencies in November 2017 and the political outcome of the ANC’s elective conference in December 2017.


David Crosoer, executive of research and investments at PPS Investments, said the MPC’s split decision had surprised the markets.

He said there was little indication in the governor’s address that the SA economy was improving. 

“It left its economic forecast for 2018 and 2019 unchanged and expects just 0.6% growth this year. Consumers consequently should brace themselves for a sobering October Medium Term budget speech next month, and a tough interrogation from the ratings agencies in December,” he said. 


FNB CEO Jacques Celliers was supportive of SARB’s move. 

He said that by leaving rates unchanged SARB was “enabling additional stability at a time when many domestic political and policy issues remain unresolved”.

“Recent weakness in the rand shows us that events beyond our control can result in unforeseen volatility for consumers,” he said.

“FNB is firmly supportive of the Reserve Bank.”

“Its well-reasoned rates decisions and reassuring stewardship of Monetary Policy cannot be underestimated,” he said.  

Celliers said that following the decision, FNB would maintain its prime lending rate at 10.25%. It will review its position after the next SARB MPC meeting in November.

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