Having already raised interest rates by 0.75% during 2016 the Monetary Policy Committee of the South African Reserve Bank (SARB) had some room to maneuver in making their decision to keep interest rates unchanged today.
“Inflation remains a concern, but was not a large enough threat in terms of price stability when considering the weak local economic outlook for 2016,” says Johan Gouws Head of Absa Asset Consultants.
“Given the focus on a possible credit rating downgrade any risk to further dampening economic growth prospects had to be avoided at all costs and raising interest rates would have resulted in increased concerns about local growth prospects.
“A delay by the Federal Reserve in the United States (US) to raise interest rates also provided for less pressure on the SARB to raise rates in order to avoid a potential outflow of foreign investments. A rate hike in the US would have put the rand under additional pressure considering the current political uncertainty.
“The decision to keep rates unchanged was therefore a case of the SARB following a pragmatic approach with regards to monetary policy as they considered the broader context within which their mandate of price stability is adhered to.”