Johannesburg, 23 May 2018 – The South African Reserve Bank’s (SARB’s) decision to keep the repo and prime rate unchanged at 6.75 percent and 10.25 percent respectively augurs well for beleaguered businesses in the Metals and Engineering (M&E) sector, especially given the current state of the economy, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.
Speaking after this afternoon’s announcement by the Reserve Bank, SEIFSA Chief Economist Michael Ade said businesses in the M&E cluster of industries continue to face headwinds, amid increasing operational expenses, stalled domestic demand, a weaker exchange rate and volatile margins.
“The generally weaker exchange rate, increasing logistics costs and rising input costs compound the cost of doing business locally. Moreover, there is additional pressure on local businesses coming from the external trading environment as a result of constricted global growth expectation due to trade war risks. If global growth expectation is lowered due to the global trade war, it is difficult to avoid systematic risks, especially to smaller economies. It also becomes very difficult for exporting companies to find new markets,” Dr Ade said.
He said that the sensible decision by the Reserve Bank’s Monetary Policy Committee (MPC) members to leave interest rates unchanged augurs well for local firms at the micro level – including small and medium enterprises which are very sensitive to interest rate changes – and exporting companies.
In conclusion, Dr Ade said the stable interest rate trajectory enables businesses to plan future production processes and make trade decisions with a reasonable degree of certainty. He said the positive effects on the cost of doing business in the broader manufacturing sector will invariably have a positive impact on the margins of struggling companies.
Dr Ade said the decision by the MPC was also expected to go a long way towards boosting local consumer demand for final manufactured goods, given that consumers now have a slight reprieve on their personal budgets. It also bodes well for the M&E cluster’s intermediate manufactured goods, which are principally driven by derived demand dynamics.