Interest Rate Update

Many would have breathed a small sigh of relief when the Reserve Bank decided not to raise the repo rate. But clouds remain:

• On Thursday the South African Reserve Bank (SARB) kept the repo rate on hold at 7%, leaving prime at 10.5%.  However, the Reserve Bank Governor Lesetja Kganyago made it clear that this is a ‘pause and not a reversal’.  Some economists anticipate the repo rate will end 2016 at around 7.5%.
• SARB revised economic growth downwards to 0.6% from 0.8% for the year.
• The Bank expressed concern that inflation and inflation expectations remain high.  A major concern in the exchange rate, with the rand remaining weak and volatile. Although a stronger USD contributed to emerging market currency weakness, local politics has contributed to the rand being one of the weakest performing emerging market currencies.