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Thursday's decision by the South African Reserve Bank's Monetary Policy Committee to keep the repo rate unchanged at 6.75% reflected changes in the monetary policy outlook both locally and globally, says the Nedbank Group Economic Unit.
According to the unit, central banks in the major industrialised economies have assumed more dovish stances as the global slowdown seems to be deeper than initially expected.
It was the second consecutive meeting where the MPC unanimously decided to keep the repo rate unchanged. The expected levels of future inflation were broadly unchanged since the previous meeting.
Unchanged - for now
The unit expects the repo rate to remain unchanged for the remainder of 2019. It does, however, expect rising inflation will prompt the MPC to resume a mild hiking cycle with a 25-basis point increase in March 2020.
Sanisha Packirisamy, economist at Momentum Investments, expects interest rates to remain steady in the near term, "with the positive downward trajectory in inflation expectations likely lessening the pressure on the SARB to maintain a tightening bias".
Luigi Marinus, portfolio manager at PPS Investments, noted that, in a low-growth environment and with the uncertainty faced by many South African consumers, it's often easy to forget that the primary mandate of the MPC is to manage inflation. In this regard, the SARB governor has acted in accordance with his mandate, "even though it has required him to adopt a hawkish stance".
Rand treading water
Peregrine Treasury Solutions commented that the rand continued to tread water in the wake of the SARB rate announcement. The rand weakened to R14.73/$ during the afternoon, before stabilising to R14.64 /$ and closing at R14.67/$.
FNB Chief Economist, Mamello Matikinca-Ngwenya, said the bank expects inflation to remain below 5% for 2019. It cautions that risks to the inflation outlook, particularly emanating from the rand exchange rate, remain.
A 25-basis point cut would have been preferable, according to Steel and Engineering Industries Federation of Southern Africa (SEIFSA) economist Marique Kruger.
In her view, SARB's decision was critical, given the need for South Africa to be ultra-cautious of heightened exchange rate volatility, which may arise after Moody's rating agency makes a decision on the country's sovereign credit rating on Friday.
Property
Samuel Seeff, chair of the Seeff Property Group, said while the MPC decision is unlikely to be a boost for the market, it does offer some relief for buyers and home owners who are facing pressure on their household budgets.
"We remain of the view that the property market will trade fairly flat, largely sideways for the first half of the year, and current market and economic indicators continue to support that view," said Seeff.
Dr Andrew Golding, chief executive of the Pam Golding Property group, said the residential market continues to reflect surprising resilience despite the fact that some are awaiting the outcome of the election in May.
"With the forecast for mild interest rate hikes having been pushed out to late 2019 or possibly even early 2020, the current market presents a unique opportunity for informed buyers and investors to secure sound medium to long term investments at good value," said Golding.
Mike Greeff, CEO of Greeff Christies International Real Estate, foresees a likely 25-basis point increase of the repo rate by the middle of the year.
"The expected stability post-elections is likely to boost market optimism and encourage buyers to commit without too much concern," said Greeff.
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, said that by keeping interest rates unchanged, the MPC has allowed the housing market to continue its gradual correction following a year of house price decline in relation to inflation levels during 2018.
Rudi Botha, CEO of BetterBond, said household expenditure is currently declining, so static interest rates are needed to support growth - and will also offset the pressure on households resulting from the further fuel price and levy increases and hike in electricity tariffs.
