No repo rate hike expected
The South African Reserve Bank is expected to hold off on policy rate cuts at their next meeting, which begins tomorrow, according to a Reuters survey outcome.
The outcome of the SARB's decision will have bearing on the decision to adjust the local rate when the Bank of Namibia's monetary policy committee meets to deliberate interest matters on 15 August 2017.
Economists are split on the matter since the recessionary conditions warrant a cut, and yet exposure to certain well-known risks requires the central bank to proceed with caution, according to Reuters.
The majority of surveyed experts expect the repo rate to remain at 7.0%, a couple expects a moderate cut of 0.25% and one outlier expects a 50-basis-point reduction.
Twenty-four of 27 economists said the Reserve Bank would hold rates at 7% on Thursday. Two predicted a 25-basis-point cut and one expects the repo rate to be cut by half a percent.
Economic growth in South Africa will be weaker this year after the country slipped into recession in the first quarter, and with inflation easing an interest rate cut is expected in the first quarter of next year.
“While our consumer price index view indicates that the SARB has room to ease rates from as early as next week, it will first look to change its inflation rates narrative before pulling the trigger,” said Jeffrey Schultz, an economist at BNP Paribas.
Schultz said at least two members of the Monetary Policy Committee could vote in favour of a 25-basis-point cut next Thursday. At its May meeting, only one of the six committee members voted for a cut.
“This should send a signal that September is a 'live' meeting,” he said.
In our view, the SARB refrained from cutting rates because of concerns that credit rating downgrades will result in a weak rand,” RMB South Africa said in a trade note this week.
“The inflation profile is improving, the economy is in recession and the local currency has recovered even in the presence of political risks, why then would the monetary policy committee miss this opportunity to lend a hand to the ailing economy because of exogenous factors beyond the control of the central bank is difficult to fathom, especially now that credit ratings seem unlikely to change over the next six months,” RMB added.
At 5.4% in May, inflation has been slowing after a drought experienced in South Africa last year and will probably average 5.4% this year and 5.3% next year.
-Additional reporting by Reuters
STAFF REPORTER
The outcome of the SARB's decision will have bearing on the decision to adjust the local rate when the Bank of Namibia's monetary policy committee meets to deliberate interest matters on 15 August 2017.
Economists are split on the matter since the recessionary conditions warrant a cut, and yet exposure to certain well-known risks requires the central bank to proceed with caution, according to Reuters.
The majority of surveyed experts expect the repo rate to remain at 7.0%, a couple expects a moderate cut of 0.25% and one outlier expects a 50-basis-point reduction.
Twenty-four of 27 economists said the Reserve Bank would hold rates at 7% on Thursday. Two predicted a 25-basis-point cut and one expects the repo rate to be cut by half a percent.
Economic growth in South Africa will be weaker this year after the country slipped into recession in the first quarter, and with inflation easing an interest rate cut is expected in the first quarter of next year.
“While our consumer price index view indicates that the SARB has room to ease rates from as early as next week, it will first look to change its inflation rates narrative before pulling the trigger,” said Jeffrey Schultz, an economist at BNP Paribas.
Schultz said at least two members of the Monetary Policy Committee could vote in favour of a 25-basis-point cut next Thursday. At its May meeting, only one of the six committee members voted for a cut.
“This should send a signal that September is a 'live' meeting,” he said.
In our view, the SARB refrained from cutting rates because of concerns that credit rating downgrades will result in a weak rand,” RMB South Africa said in a trade note this week.
“The inflation profile is improving, the economy is in recession and the local currency has recovered even in the presence of political risks, why then would the monetary policy committee miss this opportunity to lend a hand to the ailing economy because of exogenous factors beyond the control of the central bank is difficult to fathom, especially now that credit ratings seem unlikely to change over the next six months,” RMB added.
At 5.4% in May, inflation has been slowing after a drought experienced in South Africa last year and will probably average 5.4% this year and 5.3% next year.
-Additional reporting by Reuters
STAFF REPORTER
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