25 May 2017
Entrepreneurs breathe sigh of relief, but stay alert
Ross Drakes, incoming president of the Entrepreneurs’ Organisation (EO) for Johannesburg says entrepreneurs across South Africa will feel relieved that SARB has left rates unchanged, especially off the back of the economic downgrades.
"There is a strong sense of frustration and anxiety since the Cabinet reshuffle and subsequent downgrade among our members. It will be interesting to see how much the needle shifts in the next Global Entrepreneurship Indicator survey period, scheduled to take place in September.
"Until then though, members are keeping an eye on interest rates announcement such as the one made today and have discussed with one another the strategies or approaches they plan to put in place over the short to medium term,” says Drakes.
25 May 2017
What would MPC have done if Gordhan was still finmin?
David Crosoer, executive of research and investments at PPS Investments, says, while there were some grounds for increased optimism, continued domestic political uncertainty and the prospect of further US rate hikes gave the MPC little choice but to err on the side of caution.
"While short-term base effects are helping bring down inflation, it’s clear that SA’s political putsch in late March structurally raises the prospect of higher inflation, as new Finance Minister Malusi Gigaba, appears far more sympathetic to increased government expenditure than fiscal restraint," says Crosoer.
"As always, it is almost impossible to determine how different the MPC’s decision might have been, had Pravin Gordhan remained the Finance Minister. There is little doubt however that had South Africa retained its investment grade rating and confidence in its institutions, it would have been better placed should global sentiment turn against emerging markets. We remain prepared for a bumpy ride."
25 May 2017
SA could see one rate cut before end of 2017 - economist
Johann Els, senior economist at Old Mutual Investment Group believes that despite the recent downgrade and concerns around the economy, South Africa could still see one rate cut before the end of 2017, with two more cuts in 2018, and that over the shorter term the South African economy is not looking as bad as we thought.
Els foresees inflation dropping to below 5% by July 2017. “Given this and the current environment, we still expect the SA Reserve Bank to cut interest rates this year,” says Els.
He says that his interest rate forecast is based on the belief that South Africa’s economic cycle is actually looking better than expected over the next two years. “We will continue to see falling food and headline inflation, with rising exports leading to the narrowing of the trade and current account deficits,” says Els.
“The rand also continues to be stable, despite the hovering political risk, but we expect the tightening of fiscal policy to continue as the market watches Minster [Malusi] Gigaba’s movements closely,” says Els.
However, this outlook is limited to the short-term cycle. Over the longer term it is due to some key risks that SA still faces.
25 May 2017
SARB has reached peak of hiking cycle - economist
Sizwe Nxedlana, chief economist at FNB: The SARB once again erred on the side of caution as the balance of risks to the inflation outlook remains tilted to the upside. While the notable deceleration in headline inflation and the moderation in core inflation suggest that inflation is becoming less of a concern, renewed exchange rate weakness and elevated inflation expectations threaten this outlook.
Nxedlana continues to believe SARB has reached the peak of the hiking cycle, and will wait for risks to lean more towards the downside before reducing the policy rate.
"While portfolio flows into emerging markets continue to bode well for the currency, the sustainability of these portfolio flows remains uncertain.
"Given that the Fed is expected to continue gradually hiking rates; the pending balance sheet reduction could have negative implications for emerging markets. Furthermore, event risks locally remain as we head into the ANC elective conference and await S&P and Moody’s sovereign rating reviews," according to Nxedlana.
25 May 2017
SARB treads carefully - FNB
FNB has confirmed that it will maintain its prime lending rate at 10.50% and will review its position after the next SARB MPC meeting in July.
FNB CEO Jacques Celliers says with consumer inflation now below SARB’s upper limit of 6%, the possibility of rate cuts in future has improved markedly. Demand for credit and overall levels of business activity remain subdued and these trends add impetus to rate cuts in future.
He says consumer and business confidence remain key drivers and both are now recovering slowly from low levels in 2016. "Encouraging trends in agriculture and commodity prices will lift our economy in coming quarters and this can be amplified by lower rates."
Celliers fully agrees with the SARB governor that there is no currency or investment case to be made in support of higher rates. "If SA can lift economic activity and employment, it will become an attractive destination for investors without higher rates."
25 May 2017
Welcome breather
Samuel Seeff, chairman of the Seeff property group: We expected this decision given that there has been no further economic upheaval since the Cabinet reshuffle and change of the Finance Minister at the end of March.
Although the rand remains volatile, good news this week came in the form of a lower inflation rate, down to 5.3% (from 6.1% in March) while the IMF (International Monetary Fund) also recently upgraded the economic growth rate to 1% (from 0.8%) for this year.
A flat interest rate and lower inflation gives more breathing space to consumers and home owners and allows buyers to still benefit from a rate saving and get slightly bigger bonds, says Seeff. This is good for the property market which continues at a fairly balanced pace.
25 May 2017
Real estate industry cheers steady rates
Mike Greeff, CEO of Greeff Christie’s International Real Estates: The holding of the current interest rate at 7% by the South African Reserve Bank brings relief to the real estate industry, and allows potential buyers and current bond holders to plan with more certainty over the next few months.
The lower than expected inflation rate (5.3%) could leave room for a welcome rate cut by year end.
Affordability is currently an issue, particularly from the younger would-be first-time purchasers, who are struggling to enter the real estate market, explains Greeff. For this sector specifically, a stable interest rate is vital.
While there has been a slight lower house price growth in some areas of the Cape Peninsula, continued strong demand ensures that the region is still outpacing the rest of the country, with year-on-year increases in the average house price growth rate sitting in double digits.
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Kganyago: We are still uncomfortable that the inflation forecast is uncomfortably close to the upper target band.
We look at a balance between the impact on the immediate term ito inflation and growth and what we think could happen over the forecast horizon and then we make a decision.
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Dr Andrew Golding, CE of the Pam Golding Property group: While the decision by the Monetary Policy Committee meeting to hold the repo rate steady was expected, a reduction would have provided a much-needed boost for consumer confidence and market sentiment given the ongoing weak economic growth experienced in South Africa.
Golding says it would also have provided added incentive for savvy first time buyers wanting to gain a foothold on the property ladder.
"While we await the ratings announcement from Moody’s, the third major global ratings agency, and against the backdrop of volatile socio-political factors and slower national house price inflation, the residential property market overall, remains strongly resilient".
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