Reserve Bank keeps repo rate at five percent

The South African Reserve Bank’s monetary policy committee (MPC) has decided to leave the repo rate unchanged at five percent today to the relief of consumers. It last cut the rate by 50 basis points in July this year. The prime lending rate stands at 8.5%.

“Although global and domestic growth conditions remain challenging, the MPC is of the view that a further reduction in the repurchase rate is not appropriate at this stage. The MPC has therefore decided to keep the repurchase rate unchanged at 5,0 per cent per annum. This accommodative stance is assessed to be consistent with the Bank’s price stability mandate, and conducive to encouraging growth and domestic investment,” said Gill Marcus, Reserve Bank governor. She added that further actions going forward would be dependent on global and domestic developments that may change the risks to the outlook.


Absa said it will keep its prime interest rate at 8.5% but advised consumers to maintain mortgage repayments and pay off their debt as low interest rates persist.


“The debt ratio has increased to 76,3% in the 2nd quarter from 75,6% in the 1st quarter. The growth in real household disposable income slowed down to 3% in the 2nd quarter from 3,3% in the 1st quarter. We encourage consumers to concentrate on paying off any debt because the lower the interest rate is, the more of the principal amount you are paying back with each repayment,” said Bobby Malabie, chief executive of Absa retail and business banking.


Arrie Rautenbach, Absa head of retail markets said stable rates provide for an opportunity for homeowners with a good credit standing to maintain their current rate and pay off their loan faster. He advised consumers not to reduce repayments on their home loan. “If anything, you need to lift repayments to get further ahead - build a buffer in your offset/redraw accounts. You can access it later if necessary,” he said.


A good decision
John Loos, household and property sector strategist for FNB, said leaving the interest rates unchanged was the appropriate thing to do.


“The reality is that household sector “debt-service-risk” is high, due to the high levels of indebtedness, and on the rise. It is thus important from a household sector financial health point of view that more rapid growth in credit to this group not be encouraged at the present time,” said Loos.


He added: “At the current time, the SARB’s decision not to encourage further rise in the household sector debt-to-disposable income ratio was arguably a good one. But rates remain very low, and those households that are highly-indebted have the ideal opportunity to reduce their debt-to-disposable income level while these interest rates are still low.”