By Ina Opperman
25 Basis Point Hike: 3/2 vote split for smaller repo rate increase.
50bps was forecast and ‘some minor fine-tuning could be forthcoming’.
The repo rate is increasing by only 25 basis points (bps) and not 50, due to the near-term risk of load shedding to the economy.
Three members of the monetary policy committee voted for the 25bps increase, while two preferred a 50bps hike.
SA Reserve Bank (Sarb) Government Lesetja Kganyago said that the current rate of 7.25%, the repo rate supports near-term credit demand and the latest increase is consistent with the Sarb’s view of inflation and risks.
Economic research group Oxford Economics Africa says the 25bps increase was a notable step down from the 75bps increases of the previous three meetings, to 7.25%.
“Although the repo rate is now at its highest level since July 2009, Sarb’s current hiking cycle has not been the most aggresive on record, nor will it be the longest.”
The group believes Sarb has adequately lightened monetary policy during the current cycle and markets can start to prepare for a protracted holding period from the second quarter.
“We expect some minor fine-tuning could be forthcoming during the next policy meeting in March, which could see the rate increase to 7.5%.”
Elna Moolman, head for SA economic, fixed income and currency research at Standard Bank, says the bank agrees with Sarb that a 25bps rate hike is appropriate at this stage, following the significant preceding rate hikes.
“Global and domestic inflation pressure is moderating and inflation should be back inside the target range relatively soon,” she said. “we do not currently forecast further rate hikes, but there is a risk that there might be one more 25bps rate hike at the March meeting.”
Niel Roets, chief executive of Debt Rescue, says this latest rate hike is bad news for those paying off debt on property, vehicles and credit cards.
“Consumers are hanging on by a thin thread and there is no more room to manoeuver,” he said.
Carmen Nel, economist and macro strategist at Matrix Fund Managers, says this eighth hike in the cycle takes the policy rate to slightly above neutral, which may partly explain why the committee opted for the smaller increment – but even so, the voting split was decidedly hawkish.
“Ongoing hawkishness is justified by the potential for tightening in global financial conditions amid significant global growth risks, the increase in surveyed inflation expectations, upside risks to food prices from load shedding and the shift from La Nina to El Nino, as well as the pending Fed decision which could lift rates by as much as 50 basis points.
