While economists were somewhat divided on the outcome of the SA Reserve Bank’s Monetary Policy Committee’s (MPC) interest rate announcement on Thursday 24 November 2016, the construction industry held its breath.
According to painting, waterproofing and construction company, Indawo, the timing of the announcement pre-festive season, has a direct impact on industry sentiment into 2017, as construction companies wind down to the builders’ holiday period beginning mid-December. Up or down? This was the question contractors were asking as they contemplated vital cash flows during a month long shut-down period.
After some nervous moments in boardrooms across the country, SA Reserve Bank governor Lesetja Kganyago announced that the repo rate would remain unchanged.
Indawo managing director, Geoffrey Jäck, says that looking at inflationary pressures, the industry, like economists, was divided on which way the governor would lean. These pressures, along with an upward tick in the consumer price index to 6.4%, added to the nervousness felt by the industry. “To say that we are relieved by keeping the bank repo rate unchanged at 7% and prime lending rate at the current 10,5%, is an understatement, especially as a tough year is now behind us”.
Ultimately, the SARB has acted prudently and in the interest of growth. This offers the construction industry some respite as it battles to normalise and grow, while still being a key provider of employment in the country. Consumer and business confidence have been boosted as both make vital planning decisions for 2017.
“The announcement to keep the rate static provides some confidence in the market,” says Jäck, “and the industry can move into the December period with more assurance in cash flow forecasting. December month is a challenging month in the industry as costs tend to creep up as suppliers seek payment while projects come to a standstill for 4 weeks, reducing the ability for contractors to invoice.”