The tortoise and the hare: Why an unchanged repo rate is better than we think

Slow and steady wins the race. Picture: Rojda/Pexels

Slow and steady wins the race. Picture: Rojda/Pexels

Published Jan 25, 2024


The South African Reserve Bank’s (SARB) decision to hold the repo rate steady is more than just a short-term reprieve for struggling consumers; it is a sign that our interest rate environment is starting to stabilise.

And just like the idiom ‘slow and steady wins the race’, the decision to keep the rate unchanged may be better than we think – and maybe even healthier than a cut.

After all, if the rate was dropped today and then hiked again at the next Monetary Policy Committee (MPC), it could create uncertainty about the future. And uncertainty not only breeds stress and anxiety, but does not allow us to plan with any level of confidence.

While an unchanged repo rate was the expected – and even welcome, outcome, the latest consumer price inflation figures, which showed price growth to have slowed again in December, gave a glimmer of hope for a rate cut.

But as SARB governor Lesetja Kganyago explains, the cutting of rates is not about whether inflation has come down or not, but about the sustainability of its decline.

He says the Bank is an “inflation targeter”, and a flexible one.

“Inflation rose, and rose above our target band. It started to decline but it was very slow. Then it eventually declined to 5.4 percent. It then declined all the way to 4.7 percent. Then it picked up from 4.7 percent to 4.8 percent, then back to 5.4 percent, and rose to 5.9 percent.

“It had since receded from the 5.9 percent to the 5.5 percent, and then to the most recent figure of 5.1 percent.”

As these numbers show, there is not a discernible trend that shows inflation is declining to the Bank’s target, which is the mid-point of its target range of three percent to six percent.

“And so, for as long as there isn’t any sustained decline of inflation towards our target and, more importantly, that inflation stays there in a sustained manner, don’t expect us to recalibrate policy.”

He adds: “Focus on what is the anchor of policy. The anchor of policy is inflation. It is only when we are convinced that inflation has declined to target, and is sustained there, that it will become necessary to recalibrate rate policy.”

The unchanged rate has been largely welcomed by economists and business experts. Bradd Bendall, interim chief executive of BetterBond, says the decision is good news and signals that further belt-tightening is not on the cards right now for cash-strapped consumers.

“This is the fourth time in a row that the MPC has kept rates unchanged, so we are starting to see stabilisation in our interest-rate environment.”

Homeowners can, thus, take heart from the fact that their monthly home loan repayments will remain the same. Aspiring owners who may have placed their home buying plans on hold last year, when interest rates were rising, “can start dreaming of homeownership again”.

“Economist and our banking partners tell us that we could see interest rates start to drop in the second half of this year. This latest decision, to hold rates steady, is a positive step in that direction, not only for the residential property market in South Africa, but also for our economy,” he says.

FNB says the unchanged repo rate decision was as expected.

“This means that the SARB has kept interest rates unchanged since May 2023, after a prior 475 basis point hiking cycle starting in late 2021. Although CPI inflation is back within the SARB’s thre percent to six percent target range, at 5.1 percent it remains nearer to the upper target limit, so the SARB is in no hurry to cut rates just yet.”

Although the repo rate remains at a 14-year-high dating back to May 2023, Tyson Properties founder and chief executive Chris Tyson is optimistic that this signals a period of greater stability for South Africa’s property market. This is good news for buyers and sellers.

On an even more positive note, he expects the repo rate to begin to drop during the second half of 2024.

“This will balance out further turbulence that is expected during 2024, especially in the lead-up to the State of the National Address and the Budget Speech in February which could herald increases in personal tax as well as property taxes.

“The economic fundamentals associated with subdued economic growth, high inflation, and high unemployment remain daily realities. Even though the inflation rate has dipped, the possibility of fuel price hikes persists as do other increases which may impact households’ disposable incomes.”

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