When doing nothing feels right…

As human beings we are hard-wired for progress. The urge to improve, to grow and to create greater efficiencies around us are what distinguish us from the rest of the animal kingdom.

For that reason, it is not natural to accept that doing nothing is often the right strategy. Yet, listening to Reserve Bank Governor, Mr Lesetja Kganyago delivering the decision of the Monetary Policy Committee (MPC) last Thursday, it was evident that keeping rates on hold was the right decision.

The record low levels of the repo and prime interest rates, brought about in February and March of last year in the midst of the COVID outbreak, have created an economic environment providing ‘breathing room’ to stressed consumers. Lower rates mean lower repayments on debt, which one then hopes creates demand for goods and services, which flows through to economic growth. But, with the precarious position the world is in, and South Africa’s dependence on foreign capital flowing into our economy and markets, a further reduction of rates would soften demand and dent the appeal of investing in our local assets.

The fact that the members on the MPC were split 3 – 2 in their decisions to hold versus drop rates further does leave the door open for future cuts. But at this meeting, doing nothing was nonetheless correct!

Steve Crouse

Chief Investment Officer and Senior Advisor