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Banks keep interest rates on hold following the Reserve Bank's decision

by , 27 March 2015

Yesterday, the South African Reserve Bank announced the outcome of its monetary policy committee (MPC) meeting.

The central bank opted to leave its repo rate unchanged. This led major banks to leave their interest rates unchanged too.

Let's take a look at the reasons behind the Reserve Bank's decision…


The repo rate remains at 5.75%


The Reserve Bank announced that it was keeping the repo rate “unchanged at 5.75%,” reports IOL. The last move to the repo rate occurred in July last year, when the bank increased it 0.25%.

This led major lenders, such as Nedbank and Absa, to also leave their interest rates untouched following the announcement, notes Fin24.

The central bank made its decision based on its “concerns about a deterioration in the inflation outlook with those over weak economic growth,” says MoneyWeb.

With the country struggling with power supplies amongst other things, there’s a risk to economic growth, adds MoneyWeb. But with fuel prices starting to climb again and the rand so volatile, the upward pressures on inflation are there.

The governor of the Reserve Bank, Lesetja Kganyago, says the bank is keeping its “growth forecast for the year… at 2.2% for 2015 and 2.3% for 2016,” notes IOL.


What lies ahead for interest rates?


Isaac Matshego, an economist with Nedbank, says they believe the Reserve Bank will hike rates 0.25% in November, reports BDLive. He says this is due to the central bank suggesting a hike could be soon with the language it used. “It’s just a question of when.”

Investec Asset Management’s Nazmeera Moola said that it’s clear the committee is concerned about growth, notes MoneyWeb. But are watching inflation closely. The bank “raised their inflation forecasts for 2015 (from 3.8% average in January to 4.8% now).

So as expected, the Reserve Bank left rates unchanged. But depending on what happens with the rand and inflation, hikes could be nearing.

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Banks keep interest rates on hold following the Reserve Bank's decision
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