This is a no-brainer: the SARB has no good reasons to raise the interest rates right now and a shock decision will likely only serve to rattle our already shaky economy.
We’ve had a rocky few weeks to be sure: the Rand reached historic lows against the major currencies, commodities (a large part of our economy) continued their decline, China (our biggest single trading partner) faced a currency crisis and the South African economy contracted in the second quarter. Oh and let’s not forget the will-they won’t-they panic in markets over the US Federal Reserve bumping up their interest rate. On top of all this all the old structural problems of RSA remained in place: a high deficit, high unemployment and a large proportion of the population living on credit.
This picture isn’t a pretty one and yet there really is little the SARB can do at the moment to mitigate any of the factors mentioned above. Bumping up the interest rate might serve to retain or even bolster investment in South Africa in the short term in the face of the Fed decision to hold steady but this increase will also serve to increase the cost of lending. This would represent a counter-intuitive move when the economy has shrunk and businesses and individuals find themselves relying on credit to make ends meet.
Despite these considerations a high inflation rate might have forced the SARB’s hand but the inflation figures, the one aspect that the SARB might have some control over, have come in at 4.6% for August, slowing from 5% in July. With this the one factor that might have moved the rate has disappeared.
There is another SARB Monetary Policy Committee meeting in November, the last scheduled meeting for the year, but any increase to the rate really depends on what the US Fed does and where inflation heads. Interesting, if trying, times!