'SA repo rate could remain unchanged at 11 %'

Financial analysts say factors such as weak consumer sentiment may force the Reserve Bank to keep the repo rate on which it lends money to commercial banks unchanged at 11 %. They say the bank faces a dilemma when its Monetary Policy Committee meets next week to decide over interest rates.

It reports that growth in demand for credit by South Africa's private sector slowed to 20.79% -on-year in February. This was from a slightly revised 23.06% in January. During the same period, the broadly defined measure of money supply growth M3 also fell to 21.7%, compared to a revised 25.24% in January.

The analysts say the data suggests that the bank may keep the rates on hold mainly due to weak consumer sentiment, falling retail sales and the fall in house prices. However, rising inflation remains a concern for the committee.

But inflation continues to accelerate and central bank Governor Tito Mboweni was hawkish when he spoke in parliament last week, saying the economy was not in danger of being strangled by higher interest rates.

Tighter monetary policy
Some analysts said the data showed tighter monetary policy was having the desired effect on indebtedness, and the central bank should not hike rates.

"The slowdown is good, it is adding weight to calls for the Reserve Bank not to hike rates next week," said Colen Garrow, economist at Brait Merchant Bank.

"Additional momentum behind the view is that the consumption side of the economy is slowing fast. To hike rates would be a bit too much," he said. But the data may not be enough to deter the central bank after CPIX inflation reached a five-year high of 9.4% in February, much higher than the 3 to 6%target band. Additional reporting by Reuters