Indebted consumers can breathe a sigh of relief as the Reserve Bank’s Monetary Policy Committee (MPC) decides to keep rates unchanged.
This leaves the re-purchase rate unchanged at 8.25%, while the prime lending rate by the banks also remains on hold at 11.75%.
The bank says risks to the inflation outlook are assessed on the upside.
MPC vigilant of risks
The Reserve Bank is aware that load shedding and logistical constraints are increasing the cost of doing business, while uncertainty persists with regards to food and fuel inflation.
Governor Lesetja Kganyago says the MPC remains vigilant and is ready to act should risks begin to materialise.
The Reserve bank has upwardly revised its economic growth forecast from 0.4% to 0.7% in 2023.
“Against this backdrop, the MPC decided to keep the repurchase rate at its current level of 8.25% per year. Three members of the committee preferred to keep rates on hold and two preferred an increase of 25 basis points. At the current repurchase rate level, policy is restrictive, consistent with the inflation outlook and elevated inflation expectations. Serious upside risks to the inflation outlook remain.”
Consumers buckling under high inflation
As risks to the inflation outlook remain, the Reserve Bank is expected to keep rates at the current high level.
Economists note that consumers continue to buckle under the pressure of high inflation and elevated interest rates.
It is further noted that growth in average salaries and unit labour costs is lower in 2023 and 2024.
Chief Economist at FNB, Mamello Matikinca-Ngwenya says, “If we look at the latest data that is being released, compensation of employees increased by 3.8% in the first quarter. This was lower than where inflation was during the quarter, I think it averaged around 7% – give or take. So, I think when you look at the sectorial breakdown, real wage growth remains quite depressed. Secondly, if we look at employment intentions by sector, we also see that those are starting to drift quite lower and salary growth expectations surveyed by the BER shows that expectations are drifting somewhat lower.”
As interest rates remain at a 14-year high, Kganyago says any future decisions on interest rates will remain data dependent.
He says while elevated interest rates negatively affected indebtedness consumers, they do benefit those who save.