Why slow repo rate easing is apt

This week’s announcement by the monetary policy committee of the South African Reserve Bank (Sarb) to cut the repo rate by 25 basis points may not have been by as much as most people wanted, but the conservative approach could have a positive impact down the line as we are still living in uncertain economic times.

While many were calling for a cut of 50 basis points following inflation falling to more than a four-year low for October, the decision by Sarb to be cautious now could result in rates easing further in the future.

ALSO READ: Reserve Bank cuts repo rate by only 25 bps despite economists’ call for 50

Sarb governor Lesetja Kganyago said: “I think 25 basis points is cautious because the environment is uncertain and it calls for caution.

“Inflation in the United States surprised and came above expectations, and similarly in the United Kingdom. In the Eurozone, wages were rising the fastest rate since 2000. That tells you the scale you are faced with, the uncertainty we face.”

He added: “The dollar has appreciated against most currencies, including the rand. Longer-term interest rates have increased in the US and across the globe. Short-term rate expectations have likewise shifted up.”

ALSO READ: How the repo rate cut will impact commercial property market

Kganyago said their forecast “extends out to 2027 – and we see growth reaching 2% in that year”.

It takes the repo rate to 7.75% and the prime lending rate moves to 11.25%. Sanlam Investments’ chief economist Arthur Kamp told EWN: “We do need to remain cognisant of potential risks from geopolitical developments or any changes to potential aspects of US economic policy.

“If those changes feed through interest rate decisions and global financial conditions and, ultimately, the rand, these would need to be taken into account in our own interest rates decisions.”

With the decision to cut the repo rate slightly, it will bring some Christmas cheer for those battling to make ends meet.

However, households need to perhaps take a similar cautious view ahead of the urge to splash the cash on Black Friday next week and gifts the following month. We are far from being out of the woods.