Reserve Bank governor Lesetja Kganyago has announced that the Reserve Bank’s repo rate will remain unchanged “for now”.
In the rate-settlers’ assessment, the medium-term achievement of MNB’s inflation target and a corresponding support to the real economy point in the direction of maintaining loose monetary conditions for an extended period, the Monetary Council said in a statement released after today’s meeting.
“The MPC has decided unanimously to keep the repurchase rate unchanged for now at 6% per annum”.
If it does, the MPC may be left with no choice but to hike the repo rate, which will be welcomed by pensioners but not by cash-strapped South Africans. A rate hike was expected from Turkey’s central Bank this month had the Fed lifted off, but this is no longer on the cards.
The bank added that its future monetary policy decisions will be depend on the improvements in the inflation outlook in the country.
This move was described by many economists as premature and problematic, especially in light of South Africa’s shrinking economy.
Friday’s non-farm payrolls data is expected to show the US economy added 203,000 jobs in September with the unemployment rate holding steady after falling in August to 5.1 percent, its lowest since April 2008. The rising rainfall deficiency is also a problem, and can hurt the rabi (winter) crop, negating some of the gains from lower fuel prices, keeping inflation on the higher side.
“The committee… will not hesitate to act appropriately should the risks to the inflation outlook deteriorate materially”, he said. The figure was below market expectation of 4.7%. In a recent interview in the United States, Rajan has said that capital keeps getting attracted to “strong economies” and influences RBI’s decisions on interest rates.
Williams and Richardson said current assessments suggested the neutral 90-day interest rate sat between 3.8% and 4.9% with a mean of 4.3%. They argue that sustained lower inflation, the US Federal Reserve’s decision to hold on to interest rate hikes till December and slowing industrial growth offer the right environment for a rate cut.
Factors such as the effectiveness of monetary transmission, or how a change in rates can actually impact growth is working, are usually given short shrift.
All 10 economists surveyed by The Wall Street Journal had forecast that the central bank would hold interest rates steady in September.
“The inflation outlook remains a concern for the MPC, with risks expected to be to the upside”, said Kganyago. “Should the recovery continue uninterrupted, wage growth should soon begin to gather pace-there is already evidence of this in the U.K.-and domestically generated cost pressures should help push inflation closer to target in both economies”.
South Africans needed to “ready themselves” for more interest rate increases, possibly even before the end of the year, Old Mutual Investment Group economist Rian le Roux said.