Reserve Bank holds rates steady as expected amid global uncertainty

SPEAKING OUT: Impeccable Lesetja Kganyago is interviewed at The Herald Picture: IVOR MARKMAN
Reserve Bank governor Lesetja Kganyago 
Picture: IVOR MARKMAN

The Reserve Bank held interest rates steady yesterday, as widely expected.

The decision left the repo rate unchanged at 7%.

The bank has raised rates by 75 basis points since the start of the year, and by 200 basis points since January 2014.

The last rate increase was 25 basis points in March, following a 50-point hike in January.

Announcing the decision of the monetary policy committee, bank governor Lesetja Kganyago highlighted heightened global uncertainties, following Donald Trump’s election victory in the US and its implications for emerging markets and the rand.

Oil prices were expected to go on rising, and Kganyago pointed to the 88c-a-litre petrol price rise this month and last month.

Growth remained subdued, he said, but the bottom of the cycle appeared to have been reached.

The bank had been expected to leave rates unchanged, even though recent comments by US Federal Reserve chairwoman Janet Yellen suggest that a US rate hike is almost inevitable next month.

That view is bolstered by the release on Wednesday of the minutes of the Fed’s last policy meeting, on November 1 and 2.

Rising US rates are inflationary for an emerging market like South Africa, as they increase the yield for holding dollars, which lowers the incentive for investors to buy the riskier rand.

A weaker rand stokes inflation by making imports expensive.

A global economy in the doldrums has added to domestic factors like labour instability, policy uncertainty and political concerns, to suppress growth.

International rating agencies have repeatedly flagged slow growth, and the structural impediments to addressing this, among their main concerns.

Their reviews of South Africa’s credit ratings are due in the next week or two, with Moody’s due to be the first to make an announcement, today.

The bank left its forecasts for growth and inflation unchanged from September’s meeting.

It is forecasting economic growth of 0.4% for this year, picking up to 1.2% next year, and 1.6% in 2018.

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