23 May, 2013 17:41

Interest Rates to Remain Unchanged

The Reserve Bank Governor Gill Marcus is concerned about the outlook for the economy, but as expected she announced no change in interest rates, when reporting this afternoon on the latest deliberations of the Bank’s Monetary Policy Committee (MPC). The inflation outlook is being stoked by a number of factors, which include rises in water, municipal rates and taxes, and medical insurance. Internationally, the developed world is hobbling along, while Marcus detected signs of “moderation” in growth in China, India and Brazil. The rand has seen 4.6 % depreciation since the last MPC. Possibly the most significant part of her statement was when she revealed that the Reserve Bank’s GDP growth forecasts are down: to 2.4% this year, from an earlier 2.7%, and for next year down to 3.5% from 3.7%. There is a worrying outlook for mining sector, and concern about strikes and wage settlements above inflation. And we should expect to see further petrol price increases.

Expert views

1. Sizwe Nxedlana of FNB

Gill Marcus painted a very similar view of the economy to our own, with her GDP growth forecast for this year of 2.4%. You have weakening aggregate demand and unsecured lending that needs to be tightened up. Sixty percent of our exports are commodities, and we have much turmoil in the mining sector – so we are likely to export lower volumes at weak commodity prices. It is difficult to see further acceleration in GDP in 2014.

2. Russell Lamberti from ETM Analytics

The decision and statement by the MPC reflect profound confusion about what lies ahead. The Reserve Bank would probably like to cut – the Governor even indicated that the decision to hold was not unanimous, and that one member wants to cut rates – sensing an economic downturn on the way. But it knows to do so risks a rand firestorm that would create greater inflation pressures, and probably an even deeper recession as a result. The Bank, of course, should hike rates to restore strongly positive real interest rates, but it has an ideological block to such a move and wants to avoid having to hike at (almost) all costs. So the Bank has decided that discretion is the better part of valour, which is a magnanimous way of saying that it’s deeply confused.

3. Nedbank Economic Unit

The MPC’s decision to leave the repo rate unchanged was in line with our and the market’s expectations. The statement was hawkish on inflation, with the MPC concerned about the likely impact of high wage settlements and the weaker rand. However, growth is still subdued and downside risks persist. The MPC faces the challenge of balancing weak growth prospects and rising inflation. We believe that this will persuade the Committee to keep monetary policy neutral over an extended period, with interest rates remaining unchanged well into 2014.


Lots to concern me in today’s announcement by the Governess. She sees so many troubling factors, there is a lot of uncertainty about the future, and the economy is to grow at a slower pace. Don’t rule out an interest rate cut later in the year.

Tweets of the Day:

Michael Jordaan (@MichaelJordaan): As expected no change in repo. With Rand targeting 10 to $ we may even see a surprise hike next time.

Harry Potter’s Dad (@SimonCavadino): Wearing a pink shirt and this teenage kid called me a ‘poof’! I replied that I had once shagged someone with a beard, but that was his mum.

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