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Sarb’s MPC increases interest rates

GDP forecast revised down in 2015 and 2016, unchanged for 2017. Property industry warns of strain on housing market.

The South African Reserve Bank’s (Sarb’s) Monetary Policy Committee (MPC) has decided to increase the repo rate by 25 basis points to 6.25%; the prime lending rate is 9.75%. Two MPC members favoured an unchanged stance.

Sarb Governor Lesetja Kganyago said risks to the forecast have increased to the downside, mainly due to worsening drought, the marked depreciation of the rand and the possibility of increased electricity tariffs.

He said the economy remains weak, despite an improved performance in manufacturing. The mining and agricultural sectors appear to have contracted further in Q3. 

The outlook for emerging markets (EMs) remains challenging. Kganyago said the US Federal Reserve is likely to raise rates in December, which is expected to induce further volatility within EMs in the lead up.


Headline consumer inflation was up by 4.7% year-on-year in October (4.6% in September and August). Month-on-month prices were up by 0.3%.

Inflation is expected to average 4.6% in 2015, 6% in 2016 and 5.8% in 2017. The forecast for 2017 follows a slow downward trend, with inflation expected to average 5.7% in 2017 Q4.

Changes in the forecast were due to a lower starting point, the lower oil price and the adjustment to education fees.

Core inflation was down by 5.2% year-on-year in October (5.3% in September) and fell by 0.2% month-on-month from 0.4%. 

The forecast for core inflation is marginally higher, expected to average 5.5% in 2016 and 5.4% in 2017.

He said break-even inflation rates remain at the upper end of the target range.

“We have been pleasantly surprised by the pass-through we have seen,” Kganyago added at a news conference, following the announcement.

Producer price inflation (PPI) increased from 3.4% to 3.6% in September with the main pressure from food, beverage and tobacco products. Food and agricultural products are to sustain an upward trend in PPI in coming months.

He said a higher food price trajectory has been incorporated in the MPC’s forecast for some time. However, the increased intensity of the drought, which has led to a downward revision of maize crop estimates, suggests that an acceleration in food price inflation is likely adding to an upside risk of inflation outlook.


Domestic economic growth remains subdued, but further contraction in 2015 Q4 is not expected. The GDP forecast was revised down to 1.4% for 2015 and 1.5% for 2016, but unchanged at 2.1% for 2017.

The outlook for the construction sector is constrained – as indicated by declines in new building plans passed.

The unemployed rate was up to 25.5% in Q3.

Retail sales were up by 2.7% year-on-year in September (up 4% in August). Month-on-month sales were down by 1.9%.


The rand/dollar exchange rate has been volatile, with domestic impacts.

The rand has appreciated 1% versus the euro, depreciated 3% versus the dollar and 1.5% on a trade-weighted basis, since the previous MPC meeting.

A high degree of volatility and overshooting of exchange rate may be expected in the lead up to the US Fed increasing rates.

Analyst/industry comments

Neil Roets, CEO of Debt Rescue, said in a statement following the MPC announcement that the combination of the drought in prime food producing areas, the interest rate increase and the weakening rand will have dire consequences for the poor.

“For us a good indicator of the state of the economy is the number of people who stack up debt they can’t repay and who are then compelled to seek help from debt counselling companies…. During the past six months we have shown higher growth rates since the inception of [Debt Rescue]. Although a quarter of a percentage point increase in the [repo rate] does not sound like much, it comes on the bank of a whole slew of other price increases notably food and imported commodities that have been negatively impacted by the drop in the value of the rand against all major currencies.”

Wendy Monkley, head of marketing at DebtBusters, warned that now is not the time for expensive holidays or splurging on unnecessary items. “Now is the time when consumers should communicate with their families and friends to agree not to purchase Christmas gifts this year. In addition, any bonuses or additional income should be paid into debt.”

Effect on property buyers

Bond originator ooba warned in a statement that the interest rate will negatively affect residential housing markets. 

Kay Geldenhuys, ooba manager for property finance processing, said: “This decision will unfortunately negatively impact many consumers who are already facing increasing financial strain through dealing with elevated levels of debt and the rising cost of living expenses.”

Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, pointed out in a statement that while a 25-basis point rise is not large in itself, this will be the third increase in little over a year. “When one factors in the 8-11% increase in transfer fees … it puts immense strain on the housing market. 

“In 2016 house prices will continue to rise driven largely by stock shortages, but not at 2013/2014 rates. We’re likely to see year-on-year price increases slowing to around the rate of inflation from the 8% to 10% we’ve been seeing in recent years. Sellers need to curb their expectations and with more rates hikes in the offing, 2016 will not be an easy year for home owners,” added Geffen.

Adrian Goslett, CEO of RE/MAX Southern Africa, said in a statement that further rate increases are expected during 2016. “Prospective property buyers, along with those who currently own property should prepare for this by tightening the reigns on their spending habits and building a savings reserve. While those with high debt levels will be adversely impacted by a hiking cycle, those who have saving in place will benefit greatly.

“It is important for consumers to bring down their debt levels and place themselves in the most optimum financial positon they can before the next Monetary Committee meeting,” he added.

Seeff Chairman, Samuel Seeff stated that the hike is “poorly timed” given poor economic performance and that holding the rate “would have been a vital boost for the festive season, an important period for the retail sector”.

“The hike means that a home-owner with a 20-year housing loan of around R1 million will now see their monthly repayment increase from about R9 787 to R9 959.”

But it’s not all doom and gloom.

“Seeff however, does not expect the economic weakening to have any serious impact on the housing market beyond an already expected tapering off of volumes. Save for any serious disasters, we are expecting it to be business as usual for the market next year. Those who need to or want to buy will continue to do so in the ordinary course of business. The market is still well balanced and we are still seeing relatively tight stock levels, quick sales cycles and good prices. We expect this to remain for most of next year.”

Dr Andrew Golding, CE of Pam Golding Property Group, comments: “Our outlook for the remainder of 2015 and into 2016 is that the current supply and demand environment will continue to prevail, notwithstanding the weakness in the economy.”

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Thanks Mr Governor
Please continue to milk the middle class, we have the bonds, HPs and kids at school.
You are now going to give the same song and dance, “inflation”, weakness of the rand. If Cosatu went on the rampage then it’ll stay low. It’s because no one wants to invest in a country when the “new” upperclass must be catered for first.
Sleep well with your R250000 monthly take home paycheck
Count on your and your fellow MPC members fingers and toes how many different taxes are in this country, I suppose its better than going begging from the Chinese, Russians, Americans, English, French, Swiss, Dutch in order of importance when borrowing/begging.

And you must add your double tax on top, security, schooling and medical to name three. We do not take home much.

A spectacularly stupid decision. According to the governor, they are concerned about rising electricity costs pushing up inflation. Now, I am sorry, how the HELL does punishing the consumer resolve Eksdom’s problems?

Another nonsensical excuse is “rand weakness”. Again – this is due to international resource demand falling. Again, how on earth does it help to punish the consumer? Will me paying more for my bond, increase commodity prices?

The economy is on the brink of recession, and this idiotic decision may well push it over the brink. A very merry Christmas to you fat cats too, you bloody idiots.

Lesetja my friend, what are you doing now? In similar situations all over the world, Governments introduced Quantitative easing (dropping interest rates and printing money) to prop up their failing economies.
Your MPC just introduced Quantitative tightening and this will have the opposite effect as you will kill the bit of growth that was left in the economy.
I do know your very strong views pertaining to a strong rand against most major currencies as discussed and debated many moons ago.
By raising our borrowing rate by 25 basis points you might have pre-empted the US 25 basis point rise by one month. My view is that the rand will strengthen in the interim against most major currencies (currently 14 against the US $) but that this will not be sustainable.
The rand will start weakening against all major currencies in a month’s time when /if the US raises their official borrowing rates. The net effect will thus be that our economy will be in a weaker position with the same interest rate differential difference as before. The small capital inflow that followed after our rate rise, will be followed up by the same and more capital flight due to perceptions that our failing economy will lead to our debt downgraded to junk.
This rise might have a minimal effect on import inflation (one month duration) brought by the weakening rand but on the medium term, more industries will suffer and small ‘’mom and pop shops’’ will have closed their doors. Is that worth the rate rise? My view is no!

Here’s my opinion: Rates will continue to increase so that Bonds reached 10 -11% thus we will suddenly see a rush of so called “foreign investors” buying our Bonds as they “like” the fact that SARB is doing a good job. This will lead to the Rand coming back strongly and suddenly all those investors are stuck in offshore investments. They will not be able to repatriate these investments as they will lose capital and the Fund managers are able to make Dollar fees for many years till the currency weakens to the current level! Once again we will be sucked in by the Rand / Dollar effect but actually we must ask ourself why it actually weakened since November 2011?
The answer lies with your fund managers-ask them why the currency weakened so much? Is it not because all asset managers took maximum 25% offshore thus weakening the currency?

There are many who hope it does improve so they do not miss the boat this time.

”The Rand is never to week”

Everybody and his dog who missed the opportunity to buy cheap Dollars ( for whatever needs…disinvestment, offshore loan repayments, dividend payments, imports etc.) , will again start buying deep retrace-ments.

Look at twin deficits , monetary policy for reasons why the Rand weakened after 2011.

,,,,,should read ….too weak !

Raising interest rates puts a burden on Small, medium and big business and panders to the call from the money lenders to raise the interest rates that in the end only benefits money lenders. Raising interest rates creates unemployment and makes absolutely no contribution to growing our economy or the general betterment of the South African public.
Lets take a look at the united States of America. There almost Zero interest rates have reduced there unemployed to below 5% and created great prosperity over the last 8 years.
And then Japan interest rates are so low that they will now pay business 0.01% to borrow money.
South Africa is special in this way. Some how the money lenders and finance houses/ banks get to the minister of finance and make him understand that raising interest rates is good for the poor and middle class. When really it creates less jobs, less business and takes truck loads of cash out of our economy and places that cash in the hands of the rich and wealthy and share holders. It is the same old same old same B/S story. When our South African economy struggles put up the interest rates.

End of comments.





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