Johannesburg – Governor Lesetja Kganyago on Tuesday announced, at the end of the first Monetary Policy Committee meeting of the year, that the committee had kept the repo rate at 7 percent.
Saying that the bank considered SA could be at the end of the rate hike cycle, he said the bank was keeping an eye on the situation and its outlook could change.
Kganyago noted in his speech that global inflation was a risk, and although the rand was trading in a stable range currently, China's growth - projected at 6 percent - meant there was a chance of a global credit bubble. He also noted this was helped by the fact that SA escaped a downgrade to junk last year, although this remained a threat.
Economic growth is also under pressure, although SA should grow at 1.1 percent this year and 1.6 percent in 2018, which is below potential, he said. Kganyago also pointed to low business confidence, even though commodities are rebounding, as well as a low level of gross fixed capital investment. This, he says, contributes to persistent labour market weakness.
Kganyago also noted that unemployment was at more than 26 percent, the highest level since 1997, wage growth in real terms was growing slowly, while people were spending more. He also noted consumers are under pressure, and confidence is low. Growth in credit extension to the private sector is subdued, but that to the private sector is growing, he added.
On the bright side, good rains mean that food prices should moderate. However, meat farm restocking means this category will lag others. Food price inflation should average 7 percent compared with 6.6 percent previously. A rising trend in global food prices and fuel prices locally - with another increase expected - would impact the price of food, he notes.
Kganyago said the long-term trajectory for inflation was unchanged and risks are moderately on the upside.
The decision comes as inflation hit a 10-month high of
6.8 percent in December as the cost of food surged. This was up from the
November figure of 6.6 percent. Inflation should return to the target range in the last quarter of 2017, Kganyago says.This is as oil stabilises.
The South African Reserve Bank has a target of 3-6
percent for inflation, but also has to keep an eye on economic growth.
South Africa will have been lucky to hit 0.5 percent
gross domestic product growth last year, while the International Monetary Fund
is predicting 0.8 percent for this year.
Investec on Tuesday said in a note that it was likely
that the repo rate would remain on hold in January amid lingering weakness in
economic activity and prospects of receding inflation in 2017.
Earlier on Tuesday, Jawitz Properties CEO Herschel Jawitz
anticipated the rates being kept on hold. He noted this would be “a welcome
boost to consumer confidence which sits at almost historically low levels”.
Consumer confidence slumped in the fourth quarter of last
year after election euphoria faded.
This comes after the FNB/BER Consumer Confidence Index rebounded
from -11 index points in the second quarter of last year to -3 in the third.
It then sagged back to -10 in the fourth quarter.
Jawitz says “uncertainty of any kind is not good for the
country and at a time when the political noise and uncertainty has somewhat
settled from a bad 2016, stability of interest rate policy and rates is
important".
Consumer confidence
Last week, Jason Muscat, senior economic analyst at FNB,
said "positive economic developments such as an appreciation in the rand
exchange rate, a welcome (R1.17) drop in the petrol price and a modest recovery
in job creation supported the purchasing power and confidence levels of
consumers during the third quarter of 2016.
“The peaceful, free and fair completion of the municipal
elections in early August, as well as the final outcome, may also have raised
the confidence levels - or expectations for the future - of some consumers.
during the fourth quarter, and the economic realities of weak household income
growth, poor credit extension and soaring food prices once again exerted
downward pressure during the festive season."
In addition, the petrol price increased by 88 cents per
litre between September and November, although there was slight relief of 20
cents per litre announced on 7 December. The JSE All Share index, in turn,
slumped from above 53 000 index points in the first half of September to below
50 000 in the first week of December, which may have weighed on the confidence
levels of affluent consumers.
There were also a number of political developments that
had the potential to suppress the confidence of some consumers during the
fourth quarter, including the NPA's decision to charge Finance Minister Pravin
Gordhan with fraud in October 2016, the high court application by President
Jacob Zuma to stop the publication of the public protector’s state capture
report and the election of Donald Trump as the next president of the US, said
FNB.
Jawitz notes, if consumers have a sense that interest
rates will remain stable for the foreseeable future, the caution that we have
seen from buyers may start to ease. Jawitz says that even if rates are left on
hold, property price growth and sales volumes will remain subdued in 2017.
Read also: S&P
expects house prices to be stagnant
On Monday, S&P Global Ratings predicted muted nominal
house price growth of 5.5 percent in South Africa for this year.
This implies stagnation in home prices in real terms.
The ratings agency has forecast nominal house price
growth of 6.5 percent next year.
BUSINESS REPORT ONLINE