Jacques Celliers | CEO | First National Bank | mail me |
Mamello Matikinca-Ngwenya | Chief Economist | First National Bank | mail me |
The South African Reserve Bank has decided to keep interest rates unchanged. Interest rates stability coupled with a recovery in the economy during the second quarter provides consumers and SMEs a window of opportunity to review finances. More importantly, Moody’s wait-and-see approach with respect to our country’s rating is another incentive for South Africa to stimulate economic recovery.
Overall, we expect growth to remain weak for the remainder of this year and we are growing increasingly concerned about growth prospects in 2020 given the substandard levels reflected in the RMB/BER Business Confidence Index that was released recently.
We are on course with our efforts to help consumers and SMEs who remain in a vulnerable financial position. We are using our platform to expand value to customers by enabling free access to some services or offering them at a fraction of the cost. In the last financial year to June 2019, we extended R37.8 billion worth of credit to SMEs and placed over 10,000 families in homes using our nav» (‘navigate life’) capability. We will continue to find ways to add value to customers.
The SARB’s decision to maintain the repo rate at 6.50% came as very little surprise given the uncertainty around fiscal policy and ratings action by Moody’s. We, however, are of the view that there is room to reduce the repo rate further. Globally, monetary policy remains accommodative and domestically growth and inflation remain low. In the US the Federal Reserve reduced interest rates on Wednesday and expectations are for further easing. European central banks, among others, have reduced rates below the zero bound into negative to boost economic growth and inflation. This has provided room for other emerging market central banks to ease their policy rates.
While domestic growth rebounded in 2Q19, the latest round of data points to a slow pick up in 3Q19. Barring any more upside pressures to the oil price, inflation should remain contained close to the midpoint of the target over the next year. However, we expect the cutting cycle to remain shallow given the fiscal constraints the country faces and Moody’s rating decision in November.
