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Relief for indebted SA as no change to interest rates

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Governor of the South African Reserve Bank, Lesetja Kganyago [Source: Google Images] Governor of the South African Reserve Bank, Lesetja Kganyago [Source: Google Images]

Amid escalating strain on our pockets, the interest rate remaining at 6.5% provides a welcome reprieve.

The SA Reserve Bank (SARB) has kept the repo rate unchanged at 6.5%, the bank’s governor, Lesetja Kganyago, announced on Thursday afternoon.

The prime lending rate has also remained at 10%.

The repo rate is the benchmark interest rate at which the Reserve Bank lends money to commercial banks and the prime rate is the rate at which commercial banks lend money to borrowers.

The announcement lived up to the predictions of 25 of 26 analysts in a Reuters poll released last week.

Kganyago was speaking in Pretoria after the conclusion of a meeting of the bank’s Monetary Policy Committee. It was not a unanimous decision, with some members wanting a .25% increase.

An increase in the rate at which the central bank loans to commercial banks would have been unlikely after Stats SA recently announced that the country had fallen into a technical recession.

The recession was as a result of real gross domestic product decreasing by 0.7% in the second quarter of 2018. Since GDP also contracted by 2.2% in quarter one, this heralded a technical recession, which is when two consecutive quarters of negative growth take place.

The interest rate remaining the same should provide some welcome relief for the embattled consumer amid not only the recession but continued pressure on the fuel price and general cost of living.

Last week, the Automobile Association issued a statement announcing its prediction that South Africa would soon be facing the biggest fuel hike in the country’s history.

This was based on their monitoring of the fuel price data from September 1 until now.

“A spike in international oil prices and a huge swing in the rand-US dollar exchange rate have combined to predict a knockout blow at the pumps at the end of September,” the statement continued.

“Based on the current data, petrol users will be paying R1.12 more per litre.”

The SARB was therefore in a bind as it held its fifth policy meeting of the year this week against the backdrop of a sharp drop in the rand since the previous meeting in July.

The rand was trading around 14.60 against the US dollar on Thursday, compared with 13.30 on July 19, when the central bank made its last interest rate announcement.

“Overall the SARB does remain in a very unenvious position,” said Jameel Ahmad, global head of currency strategy and market research at FXTM.


Source:

The Citizen

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