Interest Rates Stable but Economic Growth Slows

As expected the Monetary Policy Committee of the Reserve Bank has made no change to interest rates. But what did the remarks of Governor Gill Marcus tell us about the state of the economy? Certainly, the downgrading of the Bank’s ZA GDP growth forecast for this year to just 2% was a sober development. ZA Confidential sought the views of some of our experts….

Chris Hart from Investment Solutions:

The outcome was as expected. It is clear, and they said it in black and white, that they are caught between low growth and high inflation. And tensions are building between slowing growth and rising inflation. My suspicion is that they will continue to favour growth over inflation at this stage. The reduction in the Reserve Bank’s forecast for GDP growth this year to 2% is sensible and reflects reality. At this stage it will be good if we make that result….

Russell Lamberti from ETM:
The SARB continues to adopt a tactical/cyclical lens rather than a strategic/structural lens. This is manifestly clear in the Governor’s comment that policy action going forward will become “highly data-dependent.” In other words, the SARB doesn’t really know where things are headed and so is becoming a reactive rather than a proactive central bank. At least they’re being more honest with us. This in many ways is the logical outcome for a central planning committee trying to calculate its impact on a deeply complex system with the use of one blunt policy tool. This too brings into relief its downwardly-revised 2013 growth forecasts from 2.4% to 2.0%, which is really a lagging or coincident indicator rather than a leading one per se. With only 5 months left of 2013, one must ask how relevant this projection is. The SARB sees this weaker growth trajectory moving into 2014, a sensible but not particularly prescient prediction. Of note was that the SARB Governor belaboured the point that upside inflation risks are lurking, and I think it is significant that she snuck in the term ‘core inflation’ as a surreptitious synonym for CPI in parts. That could be a red flag that the SARB is going to try ignore or try explain away rising CPI by reverting to a (hopefully for the SARB) more subdued core inflation rate. This harks back to the old CPI-X regime but looks more like pretzel-twisting in a tight spot than a firm technical policy change. It’s also very Fed-like. Bottom line: get ready for an even less predictable interest rate policy outlook. This incarnation of the SARB will keep fixed income investors jumping like cats on a Sandton hot tin roof.

Hein Kruger from Kruger International:

By maintaining the interest rate at the same level the MPC once again postponed and increased the pain that a potential unavoidable increase in short term interest rates will bring to the heavily indebted South African consumer. The lowering of the growth forecast confirms that South Africans will have to tighten their belts and roll up their sleeves in order for the economy to improve.

Andrew Golding from Pam Golding Properties:

Today’s decision by the Monetary Policy Committee meeting to keep the repo rate stable was generally anticipated by market commentators, and, taking into account the heightened inflationary risks viewed against the backdrop of a still sluggish economy, the MPC’s stance appears to be a considered and moderate approach. While such decisions depend on current economic data which is subject to influence by a variety of macroeconomic factors, including global impacts, we are of the view that interest rates will remain stable for the remainder of 2013. Despite ongoing challenges for consumers in respect of rising costs of fuel, electricity, food and property rates, coupled with a stricter mortgage finance regime, we note a certain uptick in the residential property market in South Africa in general. There is an increasing sense of ‘normality’ in the market as properties change hands on a regular basis and for the usual reasons of relocation for business or personal preference, upgrading or downscaling as individual situations change in life, first time buyers entering the market, among others.

Dawie Roodt from the Efficient Group:

The repo decision was the right one. A weak economy does need some support but inflationary pressures prevents a cut. Furthermore, SA is part of the global village now and the SARB is unlikely to hike before the majors do.


No relief for borrowers, but lenders at least have some comfort. The low growth in the economy is a worry. With a growth rate of just 2%, we are more likely to destroy jobs than to create them.

Tweet of the Day:

✪ Tom O’Halloran ✪(@TPO_Hisself): A truck carrying copies of Roget’s Thesaurus over-turned. Reports say that onlookers were "stunned, overwhelmed, astonished & dumbfounded."

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