Guiding consumers since 2009

What will happen with the repo rate?

By Staff Writer
The South African Reserve Bank (SARB) will announce tomorrow (Thursday, 20 November) whether the repo rate will change or remain the same. Two economists put in their opinion on what they believe will happen tomorrow.
 
Sanlam Investments Economist Arthur Kamp believes that SARB should bide its time and leave its repo rate unchanged at the conclusion of its Monetary Policy Meeting this week.
 
"The inflation outlook – at least for the next 12 months – has improved materially. Given the sharp fall in oil prices, inflation forecasts are being revised lower. Indeed, on current information it is fair to argue that the annual advance in inflation peaked in mid-2014 and should slow into next year – possibly to 5% or lower by the second quarter of 2015, from 5.9% in October 2014," said Kamp.
 
Nazmeera Moola, economist and strategist at Investec Asset Management holds the same opinion as Kamp: "October's annual consumer price inflation (CPI) rate of 5.9% is very much in line with expectations and should reassure the market that underlying inflation is reasonably contained. The South African Reserve Bank (SARB) will therefore, in all likelihood, keep interest rates on hold tomorrow."
 
Medium term budget
 
Kamp went on to say that it is clear from the Medium Term Budget Policy Statement read in October 2014 that Minister Nene intends pulling in the reins.
 
"Apart from cutting planned expenditure in the years ahead, policy action may include tax rate increases in the new fiscal year. This is helpful for the Reserve Bank," said Kamp
 
However, one concern among market participants and economists is that expected hikes by the US Federal Reserve, probably sometime in 2015, may lead to renewed Rand weakness amid waning liquidity.
 
"Admittedly, the Bank's inflation-adjusted repo rate is very low. Actually, it is negative (just). However, the expected slowdown in inflation implies a shift to a positive real repo rate, even if the Bank remains on hold. Moreover, while US inflation remains low and the strength and/or sustainability of the economic upswing remains open to question, the US Federal Reserve can be expected to proceed with caution," said Kamp.
 
No reason for a hike
 
"Globally, the economic environment remains weak and expectations of rapid rate hikes in 2015 in the US have dissipated. Locally things aren't brighter: the growth outlook remains weak and consumer spending has been reined in drastically.
 
"Given these conditions, we see no reason for Governor Lesetja Kganyago to hike rates tomorrow. We expect inflation to be below 5% by the end of the first quarter of 2015," said Moola.
 
Kamp agreed with Moola by saying that all in all, a combination of slowing inflation (and lower inflation forecasts), soft private sector credit extension and weak domestic demand growth should be sufficient to convince the Reserve Bank that this is not the time to hike its repo rate.

Recent Articles

Featured Be financially prepared to lose your job – here’s how

During uncertain times, it’s natural to be concerned about the security of your job. Regardless of your performance at work, you may be out of work if your company is no longer profitable. But what would that mean for your personal finances, and how would you survive if you suddenly lost your income?

Should you save for a new car or finance it over time?

Buying a car is a long-term commitment. You either need to save up for it or pay it off over time, and the option you choose will depend on your personal circumstances and preferences. So, what should you consider when deciding which payment method to make use of?

Older people pay more for car insurance and other myths busted

When it comes to vehicle insurance there are nearly as many myths flying around as there are uninsured vehicles. The bottom line is that an insured vehicle is a safe vehicle that can save you a lot of money in the case of an accident. Yet, the myths persist.

How much money do you need to move abroad?

Moving abroad means uprooting your life and transferring everything you have to a foreign country – including your finances – which can be both risky and expensive. So, what are the costs of doing this, and how much should you save before you head off to start your new life?

Deals

Gingko Spa Re-opening Special R750 Voucher

Price: R750
When: Until 31 July
Where: Cape Town

Protea Hotel Senior Discount

Price: Available on request
When: Daily
Where: Cape Town

Burger and Lobster Winter Special

Price: R99
When: Daily
Where: Cape Town


Latest Guide

Guide to debt rehabilitation solutions