By Daanyaal Matthews
The South African Reserve Bank has kept the repo rate at 8.25% p/a thus putting a pause to the hiking cycle that has seen South African consumers experience ten successive repo rate increases.
South African Reserve Bank Governor, Lesetja Kganyago, has attributed this pause to the hiking cycle to an improvement in energy production, a slow increase in disposable income of households, and improvement in investment and trade both in the public and private sectors.
However, even though the conditions in South Africa seem to be in an upwards trajectory, the Reserve Bank has stated that the long-term outlook of the Republic reflects the uncertainty that plagues the global economy pointing to domestic challenges such as the volatility of the Rand, unreliable energy supply, and stronger El Nino conditions.
Speaking on VOC Breakfast on Friday, Abdul Aziz Davids, Head of research at Camissa Asset Management and portfolio manager of the Camissa Islamic funds, has stated that he did not foresee the Reserve Bank keeping the repo rate at the current level of 8.25%, stating:
“I was in the camp that expected the 25-basis point hike, we’ve had ten successive increases of 25 basis points, and, bearing in mind, the Reserve Bank have always said that while the inflation rate number earlier in the week was at 5.4% their expectation is a midpoint mark of 4.5%. So, we are a still full one percent away from that. So, I would have expected another 25-basis point but to hold break steady thereafter.”
These thoughts of increasing the repo rate were shared by two members of the Monetary Policy Committee (MPC) with Abdul Aziz arguing that those two individuals were more than likely concerned with future inflation forecasts.
The South African Reserve Bank have been cautious and have outright stated that this is not the end of interest rate hiking especially given the global strain the nation is being faced with. Abdul Aziz has commented that while we have not seen the end to inflation, we have possibly seen its peak pass, stating:
“I think whilst we have potentially the peak of inflation, I mean inflation peaked at over 8% we are sitting at 5.4% at the moment. It might take a few more months before we get to that 4.5% level which is really what the reserve bank is targeting as well,” said the Head of research at Camissa Asset Management.