MPC signals end to rate hikes

SOUTH AFRICANS can breathe a sigh of relief after economists interpreted comments from the Reserve Bank’s Monetary Policy Committee as confirmation that an interest rate hike was unlikely this year.

The SA Reserve Bank (SARB) left its benchmark repo rate unchanged at 7 percent yesterday due to improvements in the inflation forecast, the weak domestic economic outlook and the assessment of the balance of risks.

The prime lending rate, the figure charged by banks to customers, was also to remain unchanged at 10.5 percent.

Headline consumer price inflation declined to within the target range of 3 to 6 percent in August, in line with the Reserve Bank’s expectations. analyst Mike Schussler said South Africa’s economy was “a little bit on the up”.

“Population growth is 1.6 percent with economic growth at 0.6 percent. We're not going over the population growth next year. Even if we were growing at 1 percent, we’d be growing slower than the rest of the world,” said Schussler.

There was a slight turnaround in the economy, but the sale of durable goods like furniture and cars “were going nowhere”.

“Tourism is growing above 10 percent… the gold sector is doing well,” said Schussler.

He said another silver lining in the economy was exports to the rest of Africa, especially of processed foods.

Schussler recommended that South Africa relax BEE rules, which could unlock investments into the economy.

Another area he wanted to see being relaxed were municipal by-laws that impacted negatively on small businesses such as hawkers.

Econometrix chief economist Azar Jammine said inflation appeared to be under control, and this was favourable to South Africa's economic growth prospects.

“Consumers might be 
able to breathe and this is
conducive to growth being
better next year, with the rand having strengthened of late,” said Jammine.

He said while interest rates were unlikely to rise, there was also little scope for the Reserve Bank to cut interest rates.

Sizwe Nxedlana, chief economist at FNB, said the Reserve Bank’s decision to keep rates on hold wasn't much of a surprise given the weak economic growth backdrop and an inflation outlook that was likely to improve.

“Headline inflation has persistently surprised to the downside and does not look set to move meaningfully above 6 percent for the year as a whole,” Nxasana said.

“Furthermore, underlying inflationary pressures have remained contained, with core inflation averaging 5.5 percent year to date.”

Nxasana said the early parts of 2017 should see the headline inflation rate return comfortably within the SARB’s target range.

Rian le Roux, chief economist at Old Mutual Investment Group, reiterated sentiment that the economy remained under pressure and early 
indicators for the third quarter pointed to a renewed weakness after the second-quarter rebound.

“The bottom line is that the Q2 number does not mark the start of a strong rebound in the economy, as consumers remain under pressure and business investment is actually contracting as prospects remain bleak and confidence deeply depressed,” Le Roux said.

“If a global slowdown were to significantly impact on commodity prices and the rand, the Reserve Bank will have little choice but to hike rates again. If global growth is 
soggy, but not bad enough to hit the rand and commodity prices, the Reserve Bank will likely stay on hold until it's comfortable with the local inflation outlook.”

FNB chief executive Jacques Celliers said there were clear opportunities for expansion in sectors benefiting from currency weakness and lower prices, such as property and tourism, though activity remained at this low point.

“We are seeing a gradual recovery in business activity from a sharp contraction earlier in the year,” Celliers said.

“We have seen an impressive growth in savings placed at FNB, showing a high level of resilience in tough times.”