SARB to keep rates at record low

South Africa's economy is expected to rebound 3.9% this year from last year's 7.0% contraction, a 0.2 percentage points increase.

17 May 2021 | Economics

Global inflation forecasts were drifting higher, domestic inflation forecasts were comfortably inside the SARB's target range. Elna Moolman, Economist: Standard Bank

VUYANI NDABA

South Africa's Reserve Bank (SARB) will keep its repo rate unchanged as inflation remains within the bank's comfort range despite showing signs of quickening in recent months, a Reuters poll found on Thursday.

All 25 economists surveyed said the central bank would keep its repo rate at a record low 3.5% at its May 20 meeting.

Elna Moolman, an economist at Standard Bank, said while global inflation forecasts were drifting higher, domestic inflation forecasts were comfortably inside the SARB's target range. South Africa tries to keep inflation between 3%-6%.

Survey medians suggest the Reserve Bank will hike rates by 25 basis points to 3.75% either in January or March next year followed by another quarter of a percent rise either in July or September 2022 to 4.00%.

The rise in the consumer price index was expected to average 4.2% this year and quicken to 4.3% next year.

Starkly, the change in producer price inflation expectations got a big lift from last month's survey, particularly for this quarter at 6.7%, a 1.5 percentage points increase. This year's PPI was expected at 5.3% compared to a 2.6% average last year.

Hugo Pienaar at the Bureau for Economic Research said the PPI was reflecting the sharp rise in commodity prices, ranging from agriculture to steel, earlier than the CPI. The main reason is because PPI is dominated by goods whereas the services part of the CPI has remained subdued amid weak demand.

Commodity prices

Still, higher commodity prices have been a boon for Africa's most industrialized economy, boosting the rand against the green back to 13.95/$, a level last seen 16 months ago, amid upbeat factory activity reported on Tuesday

Nedbank economists wrote in a note when first-round effects have passed, both consumer and producer prices will be relatively contained until demand is lifted.

This has most economists in agreement that rates won't be lifted this year, however Goldman Sachs expects a cut in November.

South Africa's economy is expected to rebound 3.9% this year from last year's 7.0% contraction, a 0.2 percentage points increase from April's median.

Mining production increased 21.3% year-on-year in March, with the largest positive contributor coming from platinum group metals.

Investec's Annabel Bishop said South Africa could see a faster growth trajectory out to 2026, and higher levels of employment and incomes, if it implements its current planned reforms quickly instead of the slow pace of past years.

Poll medians suggested growth would slow to 2.3% and 2.0% in 2022 and 2023, respectively. – Nampa/Reuters

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