Spokesperson 1 – Jacques Du Toit, Absa Senior Economist
MPC hikes the repo rate:
The SARB’s Monetary Policy Committee (MPC) decided to increase the repo rate by a further 25 basis points to 7,25%, effective from 20 May 2016. The latest rate hike came against the background of continued rand exchange rate weakness and inflationary pressures, to some extent driven by sharp rising food prices since late last year as a result of the drought. Commercial banks are to raise their prime lending and variable mortgage interest base rates for extending credit to the public and the business sector to 10,75% per annum. Since the start of the upward cycle in interest rates in early 2014, rates have been hiked by a cumulative 225 basis points to above levels last seen in mid-2009.
Further hikes in lending rates are forecasted towards the end of the year, with debt repayments to rise and consumers to experience increased financial strain as a result. Credit-risk profiles, financial vulnerability and consumer confidence may deteriorate from current levels, causing credit providers to reconsider and adjust risk appetites and lending criteria accordingly.
MPC keeps the repo rate unchanged:
The repo rate was kept unchanged at the SARB’s May 2016 Monetary Policy Committee (MPC) meeting, despite continued rand exchange rate weakness and inflationary pressures, to some extent driven by sharp rising food prices since late last year as a result of the drought. Commercial banks will keep their prime lending and variable mortgage interest base rates for extending credit to the public and the business sector unchanged at a level of 10,5% per annum. However, further hikes in lending rates are forecast towards the end of the year to curb inflation, with debt repayments to rise and consumers to experience increased financial strain as a result. Credit-risk profiles, financial vulnerability and consumer confidence remain fragile, with credit providers’ risk appetites and lending criteria to continue to reflect trends and the outlook for the economy and consumer finances.
Spokesperson 2 – Johan Gouws, Head Absa Asset Consultants Barclays Wealth & Investment
If rates left unchanged:
The decision to leave interest rates unchanged speaks of a pragmatic approach by the Monetary Policy Committee in living up to their mandate of price stability while considering the broader context and challenges facing the local economy.
If rates are increased:
Having decided to raise rates despite the challenges facing the local economy is a bold statement and sends a clear signal to the market that the Monetary Policy Committee is serious about its mandate of ensuring price stability and restoring the elevated medium-term inflation expectations.
