Reserve Bank raises repo rate by 25 basis points to 6%
by Staff Writer,
2015-07-23 15:41:11.0
IN WHAT most analysts considered would be a very close call the Reserve Bank’s monetary policy committee (MPC) on Thursday raised the repo interest rate by 25 basis points to 6% following its three-day meeting.
The MPC noted concern over the inflation outlook towards the end of 2015 and into 2016, and a weak rand.
The repo rate was last raised by 25 basis points in July 2014 and has remained the same since then.
Many economists expected interest rates to rise, as they forecast inflation to be at the upper end of the 3% to 6% target band by the end of the year and into 2016.
There is the possibility that the US will raise interest rates before the end of 2015, which would in all likelihood prompt a further rise in rates in a number of other countries, including SA.
Absa senior economist Jacques du Toit said: “The Reserve Bank remains concerned about the outlook for economic growth that is constrained by severe electricity shortages, low levels of consumer and business confidence, inflationary pressures and the possibility of rising interest rates in the US.
“The forecast is for interest rates to be hiked again later in the year and through the course of 2016 in an attempt to contain inflation.
“Consumers with debt will thus be affected by rising debt repayments as a result of the higher interest rates, which will further add to their financial strain.”
According to Economists.co.za economist Mike Schussler, “The rate increase was pretty much expected and we are now going to see a period of higher interest rates despite lower commodity prices. SA’s economy is going to have a very difficult time ahead with lower commodity prices, load shedding and now higher interest rates. The Reserve Bank has to fight inflation and you can’t have low interest rates forever.”
ETM Analytics economist Jana van Deventer said: “The decision by the Bank to hike rates suggest it has opted to preemptively move on policy even though the US Federal Reserve has not given clear guidance on when it might hike rates and demonstrates a commitment to contain inflation expectations.
“This is perhaps the most prudent decision the Bank could have taken and today’s decision could ultimately see it being able to continue a gradual rate hike cycle rather than having to implement rapid and aggressive rate hikes further out.”
Macquarie Securities economist Elna Moolman said the Bank’s decision seemed to have been driven “partly by a concern that it may lose credibility after warning of rate hikes for so long. With the forward-looking real repo now no longer negative, we expect no further rate hikes this year.”
ETM Analytics analyst Ricardo da Camara said: “It was a 50:50 decision, with further local hikes dependent on what the US Fed and BoE (Bank of England) will do. An update in the US is due next week.
“We have an interesting situation where the market expects a US hike in December and analysts expect it in September. The governor of the Reserve Bank has expressed his concern about local growth, which remains very poor. That could indicate more of a cautious stand by the Bank on rates in future.”
Governor Lesetja Kganyago announces the decision of the Reserve Bank’s monetary policy committee on the repo interest rate on Thursday. Picture: PUXLEY MAKGATHO
IN WHAT most analysts considered would be a very close call the Reserve Bank’s monetary policy committee (MPC) on Thursday raised the repo interest rate by 25 basis points to 6% following its three-day meeting.
The MPC noted concern over the inflation outlook towards the end of 2015 and into 2016, and a weak rand.
The repo rate was last raised by 25 basis points in July 2014 and has remained the same since then.
Many economists expected interest rates to rise, as they forecast inflation to be at the upper end of the 3% to 6% target band by the end of the year and into 2016.
There is the possibility that the US will raise interest rates before the end of 2015, which would in all likelihood prompt a further rise in rates in a number of other countries, including SA.
Absa senior economist Jacques du Toit said: “The Reserve Bank remains concerned about the outlook for economic growth that is constrained by severe electricity shortages, low levels of consumer and business confidence, inflationary pressures and the possibility of rising interest rates in the US.
“The forecast is for interest rates to be hiked again later in the year and through the course of 2016 in an attempt to contain inflation.
“Consumers with debt will thus be affected by rising debt repayments as a result of the higher interest rates, which will further add to their financial strain.”
According to Economists.co.za economist Mike Schussler, “The rate increase was pretty much expected and we are now going to see a period of higher interest rates despite lower commodity prices. SA’s economy is going to have a very difficult time ahead with lower commodity prices, load shedding and now higher interest rates. The Reserve Bank has to fight inflation and you can’t have low interest rates forever.”
ETM Analytics economist Jana van Deventer said: “The decision by the Bank to hike rates suggest it has opted to preemptively move on policy even though the US Federal Reserve has not given clear guidance on when it might hike rates and demonstrates a commitment to contain inflation expectations.
“This is perhaps the most prudent decision the Bank could have taken and today’s decision could ultimately see it being able to continue a gradual rate hike cycle rather than having to implement rapid and aggressive rate hikes further out.”
Macquarie Securities economist Elna Moolman said the Bank’s decision seemed to have been driven “partly by a concern that it may lose credibility after warning of rate hikes for so long. With the forward-looking real repo now no longer negative, we expect no further rate hikes this year.”
ETM Analytics analyst Ricardo da Camara said: “It was a 50:50 decision, with further local hikes dependent on what the US Fed and BoE (Bank of England) will do. An update in the US is due next week.
“We have an interesting situation where the market expects a US hike in December and analysts expect it in September. The governor of the Reserve Bank has expressed his concern about local growth, which remains very poor. That could indicate more of a cautious stand by the Bank on rates in future.”
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