Interest rates remain unchanged

By Staff Writer
Nicolette Dirk, finance writer, Justmoney
 
The Reserve Bank announced today that the repurchase rate will remain unchanged at 5, 5 % per annum.
Prior to the South African Reserve Bank (Sarb) governor, Gill Marcus’s(pictured), announcement many economists predicted there would not be another rates hike. In January this year the interest rate went up by 50 basis points from 5% to 5.5%. This pushed the prime rate up to 9%.
 
Dawie Roodt, Efficient Group economist, said that two months ago he would have predicted an increase, but as things currently stand, it is unlikely.
“The strikes in the platinum mining industry along with electricity blackouts have had a negative impact on the economy,” said Roodt.
 
Marcus highlighted these factors today when she said the domestic economic outlook remains subdued amid continued strikes in the platinum sector and uncertainty regarding a stable and sufficient electricity supply in the coming months. 
 
While the most recent inflation forecasts suggest marginal improvements in the medium term, upside risks to the inflation outlook persist despite the recent appreciation of the rand,’’ said Marcus She added that the rand remains vulnerable to shifts in global risk sentiment and adverse domestic developments. Together with downside risks to growth, this continues to pose a dilemma for monetary policy.  
 
According to Roodt the Reserve Bank would take into consideration that South Africa’s economy will perform quite badly in 2014.
“They realise that should they increase the rates, the country’s demand will be dampened. At the moment electricity and fuel price hikes will decrease demand. When there is a sufficient demand and the economy has improved it will make sense for the Reserve Bank to increase the interest rate,” said Roodt.
 
And it seems that the majority of the country’s economists shared Roodt’s prediction.
Before today’s announcement 23 of the 30 economists polled by Reuters said they expected the repo rate to remain unchanged at 5.5%, despite rising inflation.
 
Nomura emerging markets expert, told Fin24 that he expected the rates to remain on hold, and added that he predicted the next hike to be in May and then again in September. 
 
What can consumers expect?
 
Roodt said that people should realise that the world is experiencing an interest rate tightening circle. This means that interest rates could be going up twice this year.
“The low interest rates we have been experiencing these few years are a thing of the past,” said Roodt.
 
At the Central Banks communicators’ conference dinner held earlier this month, Gill Marcus said future moves were highly data dependent in the current circumstances of heightened uncertainty. 
“We have no history of tapering or normalisation to guide us. Of course, this moderate base case is highly conditional on developments and we cannot give any unconditional commitments of future policy moves,” said Marcus.
 
She added that the previous tightening cycle experienced in 2008 was conducted in very different circumstances to what we are seeing today.

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