SARB governor Gill Marcus. Picture: Gallo Images
The SA Reserve Bank has left the repo rate unchanged at 5.5%, governor Gill Marcus said on Thursday.
The prime rate would stay at 8.5%.
Economists expected the South African Reserve Bank to be cautious and not to trim interest rates further as a result of market volatility prevailing partly on the back of the Marikana crisis.
In its previous meeting, the MPC rang a surprise 0.5 percentage point interest cut, which brought much needed relief to many economic actors, mainly heavily indebted consumers.
Economists said one of the key factors prompting cautiousness was the fact that strikes in the mining industry are having a profound impact on the market, with the rand losing ground in recent days.
Meganomics independent economist Colen Garrow said markets were anticipating some deterioration in a handful of key financial stability ratios, like public debt referenced against GDP and this deterioration was magnified by weaker GDP figures, which Finance Minister Gordhan has already cautioned was likely to be revised lower for 2012.
“With the list of threats to the inflation target growing, the best way the Bank can reassert its inflation fighting credentials, is to leave its 5% policy rate on hold. Some threats to the price target are food, fuel and administered prices. But other factors have arisen, which have also begun building an argument for monetary policy remaining on hold,” said Garrow.
He added that another risk factor and one that seems not to have been discounted completely by financial markets, was what may happen should South Africa lose a notch in its investment-grade sovereign rating.
“The damage inflicted comes through the impact that a weaker rand has on the inflation target, and the stability of monetary policy.
“Strikes cannot be making the rating agencies happy. In short, social unrest affects factors falling under political risk and economic risk, of the assessments these credit agencies make,” he said.
Investec Group economist, Annabel Bishop, said since the Marikana debacle, the rand had depreciated against the green bag and the Euro with R3.9bn in equity holdings sold off as foreigners become more risk averse to SA.
She said prior to the mining unrest and resultant rand weakness it was likely that the interest rate would be cut by 50 basis points. However the severe unrest and resultant deaths in the mining sector have reduced investor appetite somewhat, and so weakened the rand.
“This argues against an interest rate cut at the MPC meeting, along with recent data from the Bank showing household debt to disposable income rising as the accumulation of debt outpaces income growth,” she said.
In addition, Bishop said the sharp growth in unsecured debt into bubble territory should be concerning the Bank and prevent it from easing interest rates further to stimulate credit growth at the moment. Garrow said a lot could happen between now and November, when the MPC holds its last meeting of the year. With Bernard Sathekge, email firstname.lastname@example.org