Johannesburg - A SA Reserve Bank (SARB)'s decision to keep interest rates unchanged on Thursday afternoon met with a mixed reaction.
“From a household sector point of view, the SARB arguably made the right decision not to cut rates further,” said FNB property economist John Loos.
Given rising household indebtedness, SARB's decision was a good one, as it would preserve longer term residential market health.
The household sector carried a high debt risk, and more rapid growth in credit to this group should not be encouraged, said Loos.
The sector had improved its payment performance significantly, with insolvencies dropping. But the sector had relied on the SARB to maintain interest rates, which were at historically low levels.
It had not made significant financial improvements itself, he said.
The Independent Municipal and Allied Trade Union (Imatu) said it was disappointed by bank's decision to keep interest rates unchanged.
“An interest rate cut would have given our financially strapped members some much needed economic reprieve, and encouraged an increase in consumer spending,” said Imatu spokesman Johan Koen in a statement.
While the latest consumer inflation figures indicated only a mild increase in food, housing and transport costs, sharp increases in the cost of petrol and diesel would undoubtedly affect prices in the near future.
The cost of a basic food basket had increased on average by 16 percent per year for the last five years. Electricity had effectively increased by 82.3 percent in the last three years and petrol prices by 11 percent per year on average for the last decade.
Metrorail's ticket prices had effectively increased by 69 percent in the last three years.
“An interest rate cut would have given people the much-needed economic breather that is being afforded to other emerging economies,” Koen said.
The Monetary Policy Committee opted to leave interest rates unchanged, the bank's governor Gill Marcus said on Thursday.
“The monetary policy committee is of the view that a further reduction in the repo rate would not be appropriate at this stage,” she said at a televised press conference in Pretoria.
The repo rate would be left unchanged at five percent a year.
This is the rate at which commercial banks can borrow money from the SARB. It is used to calculate the prime rate, which banks give their best customers.
Marcus said the global growth outlook remained weak.
South Africa's trade deficit in the balance of payments posed a risk to the exchange rate. If the rand weakened further, inflation was likely to increase as a result. Although consumer demand was unlikely to impact on inflation, supply-side shocks were possible.
Higher food prices and resilient international oil prices could not only impact on inflation, but act as a drag on growth in the near term.
“This is a combination which poses enormous challenges for monetary policy,” she said.
The United Democratic Movement said the SARB had made a prudent decision.
“The SARB had to consider a number of economic performance indicators such as the slight increase in the inflation rate, an improved economic growth performance together with the Eurozone crisis, to keep the South African economy on a steady course,” it said in a statement.
Federation of Unions of SA general secretary Dennis George said the organisation was “cautiously pleased” by the unchanged rate, particularly since inflation had risen by five percent.
“On the other hand, we are mindful that our members are forced to tighten their belts due to rising fuel and food prices.
“Working people have absolutely no control over fluctuations in the oil price, and our uncompetitive market uses such opportunities to punish consumers with unnecessarily exorbitant price increases.”
Consumers also felt the pinch through the associated rise in interest rates.
Trade unions were aware that recent labour unrest had negatively affected foreign investment, economic growth and job creation.
“However, we still believe in the principle of fair wages and the positive effects on consumer spending patterns,” George said.
It was important to remember, however, that economic growth was slow prior to the wave of strikes that hit the mining industry over the last two months. - Sapa