THE SA Reserve Bank’s (SARB) decision to keep the repo rate unchanged at 8.25% has been described as balancing relief and growth.
The Apple Property Connection said the decision offers a balancing act between relief for consumers and stimulating economic growth.
The company said, however, that the success of this strategy would depend on various factors, both domestic and international.
“Only time will tell if the SARB’s decision proves to be a stepping stone towards a more robust economy and property market or a missed opportunity for faster progress.”
This was after the SARB’s Monetary Policy Committee (MPC) on Thursday decided to keep the repo rate as it has been.
Reserve Bank governor Lesetja Kganyago said this was a unanimous decision.
“The MPC decided to keep the repurchase rate at its current level of 8.25% per year. At the current repurchase rate level, policy is restrictive, consistent with the inflation outlook and the need to address rising inflation expectations,” he said.
Kganyago added that while headline inflation continued to ease in much of the world, core inflation remained sticky and high.
He said compared to many other emerging and advanced economies, the rise in South Africa’s headline inflation rate was more gradual and peaked lower. However, the target return has been slow. Kganyago said the inflation rate remained sensitive to changes to both global and domestic supply and demand.
Apple Property Connection said looking beyond finances, the broader economic implications of the SARB’s decision were less clear-cut. While stable rates offered predictability for business and investors, they could also dampen economic activity, the company said.
“Businesses may be hesitant to expand, fearing increased debt burdens, while consumers may tighten their belts, leading to decreased spending and investment. This cautious approach, while understandable, can hinder economic growth and job creation, potentially creating a stagnant environment.”
It has said that external factors, like the upcoming elections and global economic uncertainty, added a layer of complexity. Investor confidence remained cautious, with potential concerns about policy changes and economic stability post-election.
“Additionally, semigration trends, where South Africans seek opportunities abroad, could influence regional demand in the property market. These factors create a sense of wait-and-see, potentially delaying any significant market uptick.”
The SARB decision came as countries worldwide are likely to experience slow economic growth this year. This is despite the continued declining inflation rate.
The UN report has warned that the economic growth in Africa is projected to remain weak, increasing from an average of 3.3% in 2023 to 3.5% in 2024.
Adam Elhiraika, director, macroeconomics and governance division of the Economic Commission for Africa, said tight financial conditions, coupled with a growing risk of geopolitical fragmentation, posed increasing risks to global and industrial production.
He said while the world economy avoided the worst-case scenario of a recession in 2023, a protracted period of low growth loomed large. He said growth prospects for many developing countries, especially vulnerable and low-income countries, have remained weak, making full recovery of pandemic losses ever more elusive.
“The global economic slowdown, tighter monetary and fiscal conditions, and high debt sustainability risks will remain a drag on the region’s growth prospects,” said Elhiraika.
“The unfolding climate crisis and extreme weather events will undermine agricultural output and tourism, while geopolitical instability will continue to adversely impact several subregions in Africa, especially the Sahel and North Africa.”
On inflation, the report says that after surging for two years, global inflation eased in 2023 but remained above the 2010-2029 average. Global headline inflation fell from 8.1% in 2022, the highest value in almost three decades, to an estimated 5.7% in 2023.
Anchor Capital investment analyst for fixed income, Casey Sprake, said meanwhile, the exchange rate has drifted weaker since the last MPC meeting. He said MPC remains concerned about upside price shocks from supply chain disruptions at the Red Sea and the current heightened geopolitical tensions.
“Overall, we maintain that interest rates have peaked and will remain at current levels for some time. The forward-looking real interest rate is already high enough for the prevailing economic backdrop, with inflation forecasts remaining inside the target range and demand-driven and wage inflation remaining modest.
“Any possible interest rate cuts will likely only materialise towards the end of 2024 and depend on the inflation outlook (locally and abroad) and global interest rate developments as we progress further into this year.
“Overall, risks to the inflation outlook have deteriorated – geopolitical tensions have worsened, and the deteriorating performance at our key ports adds uncertainty to the future inflation path. Due to these various risk factors, we believe the MPC will not rush to cut the repo rate,” said Sprake.
PSG Wealth's chief investment officer, Adriaan Pask, said the FTSE/JSE all-share index fell by 0.33 at 4pm on Thursday after the Reserve Bank cautioned about the continued upside risks to the inflation outlook, particularly around food inflation, power, as well as the existing logistics and infrastructure challenges.
“Shortly after the decision was announced, the rand traded around R18.84/$, mainly supported by expectations of delayed rate cuts. Local bonds were little changed, with the five-year and 10-year government notes yielding 8.72% and 9.76% respectively.”
manyane.manyane@inl.co.za