SA's low lending rates 'won't last forever'

SA's low lending rates 'won't last forever' Repo rate remains unchanged at 3.5% The central bank's quarterly projection model predicts at least two rate hikes in 2021. We spelt out the risks that could trigger a rise in interest rates of oil and electricity prices as well as food inflation. Lesetja Kganyago, Governor: SARB South Africa's record low lending rates, which the central bank kept unchanged despite rate hikes in other emerging markets, will not last forever, Governor Lesetja Kganyago said on Friday during an online address.

The South African Reserve Bank (SARB) left its repo rate at 3.5% for a fourth meeting in a row in a unanimous decision.

While the decision was in line with most economists' expectations, a slew of rate hikes in countries such as Brazil, Russia and Turkey in response to climbing US Treasury yields had raised speculation the SARB might follow suit.

At the meeting last week, Kganyago said the bank saw overall risks to the inflation outlook as balanced, and that the impact of currency volatility, partly caused by the jump in US Treasuries, was low.

In a Q&A session with the UK-based South African Chamber of Commerce, Kganyago reiterated this view, but warned the bank could not keep lending rates low indefinitely.

Outlook

"The monetary policy stance in South Africa is hugely accommodative. The interest rate is below the neutral rate. On a forward-looking basis, interest rates are negative in real terms," Kganyago said.

"But it can't continue forever. At some stage the savings pool will say: No, this is favouring borrowers over us, the savers, and they will re-price you."

The central bank's quarterly projection model predicts at least two rate hikes in 2021, but Kganyago played down the chances of hikes this year. "Fortunately, the monetary policy committee does not outsource its responsibility to the model. We make our own judgements," he said.

"We spelt out the risks that could trigger a rise in interest rates of oil and electricity prices as well as food inflation."

"But those shocks for us when they happen, we see through them. It's whether they feed into other prices going forward. And when they do, that's what we call second-round effects and that triggers a policy response," Kganyago said. - Nampa/Reuters