Johannesburg, 28 MARCH 2019 – The decision by the South African Reserve Bank (SARB) to leave the repo rate unchanged at 6,75% is to be welcome, although a 25 basis point cut would have been preferable, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Economist Marique Kruger said today.
Commenting after the announcement of SARB’s decision to leave the repo and primate rates unchanged at 6,75% and 10,25% respectively, Ms Kruger said the Bank’s decision would provide relief to beleaguered business and individuals alike.
Ms Kruger said the Bank’s decision was particularly critical, given the need for South Africa to be ultra-cautious of heightened exchange rate volatility, which may arise after Moody’s rating agency makes a decision on the country’s sovereign credit rating tomorrow (Friday). She said Moody’s is expected to keep its outlook unchanged, despite the recent episodes of power outages, and that a downgrade may risk damaging a rebounding South African economy which is just coming out of a technical recession.
“Despite the decision to leave the repo rate unchanged, a 25 basis points cut at this very difficult time for businesses would have been helpful. A further rate cut would have helped in alleviating both the first-round and second-round effects of load shedding to businesses and consumers alike. The first-round impact arises from a direct increase in electricity spending by both companies and consumers, while the second-round impact arises from inflationary pressure – in the form of rising prices – of all other intermediary goods that are produced with electricity as an essential intermediate input,” Ms Kruger said
She said a rate cut would have been a sensible decision for companies in the metals and engineering cluster, given the fact that demand for the intermediate goods produced in the cluster is a derived demand and the sector is very sensitive to exogenous demand and supply shocks. She added that the present scenario of subdued domestic growth, volatile production and selling prices (including low consumer and business confidence) does not provide comfort to both direct and anchor investors.
“However, SEIFSA still welcomes the decision to leave the rate unchanged as it augurs well for businesses and consumers in the medium term,” said Ms Kruger.
SEIFSA is a National Federation representing 23 independent employer Associations in the metals and engineering industries, with a combined membership of 1600 companies employing around 200 000 employees. The Federation was formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing fewer than 50 people.