MARCUS keeps REPO RATE steady

DEBT repayments will remain the same, seeing that new SA Reserve Bank governor Gill Marcus announced yesterday that the repo rate would remain unchanged at 7percent.

"There is lots of uncertainty in the marketplace and this conservative approach is more or less appropriate," said Stanlib economist Kevin Lings.

Marcus' first speech focused predominantly on international markets taking the spotlight off South Africa's tepid economic recovery.

The SARB expects economic performance in the third quarter to decrease at a slower pace, "the outlook for 2010 and beyond is much better", Marcus said.

After a steep 500 basis-point drop since December last year, South African consumers are slowly acclimatising to the grinding halt ininterest rate reductions that started in August this year.

While the appreciation of the rand has kept the price of fuel in check and has had a positive effect on exports, Marcus said she was "concerned" about the negative effects of the strong currency.

Despite this concern, Marcus assured that the central bank would not attempt to affect the exchange rate, citing this as "inappropriate".

The rand is the least of the economy's worries, since Eskom's proposed 45percent rate hike over a three-year period remains uncertain. The central bank has calculated for a 25percent hike in electricity prices in 2010 and 2011.

While economists see the stagnation of the repo rate as a conservative and responsible decision, some market sectors are disappointed.

The Congress of SA Trade Unions has expressed its "extreme disappointment" at the decision.

Spokesperson Patrick Craven said: "It is a great missed opportunity to promote growth and create jobs through a decisive cut in rates."

The property market shares this sentiment. "We would have been delighted had Marcus seen fit to cut the repo rate by a further 50 basis points in her first act as governor of the Reserve Bank. It would have been just the shot in the arm the property market needed ahead," said Colliers Residential chief executive Brian Falconer.

Lings disagreed. He said decreasing the rate now would increase the pressure for rate hikes in the future.

"I believe we should hold rates for a year or more to create calmness and certainty," said Lings.