Experts concerned over 'tax creep' as interest rates remain the same

WITH the markets feeling the strain from global uncertainty, the South African Reserve Bank (SARB) kept the repurchase rate (repo rate) unchanged this week. 

That means the repo rate remains at 7.5% and prime at 11%.

Frank Blackmore, Lead Economist at KPMG South Africa, said, "Although the growth recently in South Africa has surprised or disappointed on the downside, this has led to a slight downward adjustment to the Reserve Bank forecast for this year to 1.7%.

"At the same time, inflation has edged slightly higher from the lows but is remaining constant towards the downside of the forecast. Expectations remain close to the midpoint of range, in other words 4.5%. And even the Reserve Bank expectation for 2025 is still below midpoint target range, sitting at 3.6%. and they have decided to keep interest rates constant at 7.5%.

"The reason provided was that the monetary policy set over the medium to longer term for the next year or two and towards the latter stages of the forecast, there's a lot of uncertainty and risks to the upside prevail," Blackmore told Business Report. 

He added that although the bank sees inflation remaining in the 3% range for the 1st 3/4 of this year, by the fourth quarter, that has moved up to the 4% range and potentially higher from that point onwards.

"Therefore with the amount of uncertainty both in global markets as well as the local market, they've decided to keep rates unchanged for this meeting."

Meanwhile, Brina Biggs, Senior Manager at Budget Insurance said that the ripple of today’s decisions is tomorrow’s wave and next year's flood.

"A pertinent thought regarding the SARB's decision to hold interest rates by the MPC which does not come as a surprise to the market with global uncertainty as well as the wait on the Budget Speech finalisations in parliament next month. We are seeing signals for disinflation with the softer oil prices and a stable rand, as well as the steady and consecutive 3,2% inflationary rate with a struggling economy. Unfortunately the uncertainty of Trump and the USA ties will outweigh any decision until the outlook looks more stable," Biggs said. 

"Data released by Stats SA revealed that retail trade sales, soared by 7.0% year-on-year, this consumer confidence may start being more muted with the projected VAT increase outlined in the budget combined with no adjustment for bracket creep on income tax, households still need to guard how they budget away expensive days, despite the slide in inflation and interest rates, there is no guarantee for further relief with persistent global pressures, so make sure you plan for next years flood," Biggs said. 

Hayley Parry, Money Coach and Facilitator at 1Life's Truth About Money said, "I think it's very easy to say that consumers would have agreed with the two members from the MPC who wanted an interest rate cut because there are expenses coming at us thick and fast. The first expense being that on 1 April, electricity is increasing by 12.7% and that hike is going to hit consumers hard -particularly as we head into winter."

"We also know that we have got that 0.5% VAT increase coming, and the triple whammy is that none of us have received any adjustments for salaries around bracket creep and inflation, so it may be tempting to think that the status quo remains unchanged because interest rates have not changed. The reality is that it doesn't, costs that impact everyone are going to go up and, unfortunately, we're going to need to adjust our budgets and our belts accordingly," Parry added.

Abigail Moyo, spokesperson of the trade union UASA, said, "In April, fuel prices are expected to decrease again, which is good news for motorists ahead of the busy Easter holiday travel period. We hope the economic outlook will continue to favour consumers and that the next MPC meeting will result in a rate cut and further financial relief for South Africans."

- BUSINESS REPORT