Rates Watch September 2016: Waiting for rain

It is South African Reserve Bank Monetary Policy Committee meeting time again! YAY! What will they do with the interest rates?

While the JSE has taken a few knocks over the last two weeks the rest of the economic news has been relatively positive since the last meeting.

Last month we found out that we avoided a technical recession and there was some signs of growth in the economy in the 2nd Quarter. Despite losses two weeks ago (thanks again to local politics) the Rand has made good headway in regaining and maintaining strength against the US Dollar. And this comes at a time that has seen an oil price rarely breaching $50 this year. The US Federal Reserve has also elected to keep its interest rates on hold which means the gains by the Rand won’t find themselves under pressure from that angle.

On Wednesday we saw inflation reported as having dropped below the SARB upper target of 6%, coming in at 5.9% for August. This is probably due to that improved Rand performance and relatively cheap oil (petrol cost plays a big part in affecting prices) I mentioned having somewhat countered the impact of the continuing drought on prices.

Because the SARB’s primary aim, with regards to manipulating interest rates, is to keep inflation between 3 and 6% this August’s result will likely see rates remain stable. And while there is one more meeting to come (at the end of November) the way things are shaping up the decision announced this Thursday will likely set the rate for the rest of 2016.

Keeping rates on hold also has the benefit of providing some breathing room for consumers and commercial lenders but more importantly won’t add to the pressures mounting on farmers who face continued losses and mounting debt.

While there are positive shifts in some of our major metros which will likely have massive repercussions for our economy as always we’re not out of the woods yet! There’s the possibility of a credit downgrade in the face of persistent structural and political challenges. And anyone of those challenges themselves could hurt the economy even without the threat of the downgrade. There’s also the fact that the drought continues and its effects will only compound as it drags on into 2017.

Tighten those belts where possible and you’ll be in a position to survive the worst case and prosper in the best case!

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