Why SARB's interest rate hold could benefit consumers

THE South African Reserve Bank's (SARB's) decision to hold rates could offer consumers extra relief in the longer term, despite providing no immediate respite from high borrowing costs.

- NICOLA MAWSON

On Thursday, the central bank's Monetary Policy Committee voted four to two to hold the prime lending rate at 10.5%, with the repo rate steady at 7%. Four members preferred to keep rates on hold, while two favoured a cut of 0.25 percentage points.

While this may appear to offer no additional consumer relief, the decision represents a strategic pause rather than inaction, according to market watchers.

"What the SARB did may sound like 'nothing happened', but it amounts to keeping your foot gently on the economy's brake pedal to make sure the speed stays safe," explains Liam Dawson, Portfolio Manager at PMX.

The rate hold comes as the bank considers lowering its inflation target from the current 3% to 6% bracket to a fixed 3% target, a move that could pave the way for sustainably lower interest rates.

SARB Governor Lesetja Kganyago noted that the increase in inflation was broadly as expected, given push pressures from meat and vegetables. However, Statistics South Africa data showed these costs were increasing at a slower pace.

"We anticipate that headline inflation will rise over the next few months, peaking at around 4%. Our forecast now incorporates higher electricity price inflation, of nearly 8% rather than 6%," the governor said.

"Since September last year, we have reduced rates by 125 basis points, and we want to see how this is affecting the economy, how expectations evolve, and how inflation risks are resolved," said Kganyago.