South Africa’s central bank is likely to keep its benchmark repo rate unchanged after raising it by 25 basis points last November to stem inflation pressures.
Reserve Bank Governor Lesetja Kganyago is due to announce the bank’s latest decision at a news conference starting at 3 pm, after a three-day meeting of the monetary policy committee he chairs.
Last November’s hike, which brought the repurchase rate at which the central bank lends to commercial banks to 6.75 percent, came despite weak economic growth, with the The National Treasury cutting its growth forecast for 2018 to 0.7 percent from 1.5 percent.
Kganyago said it was necessary to act then, as delaying the adjustment in interest rates could cause inflation expectations to become entrenched at higher levels.
But while the quarterly projection model which serves as a policy guideline for the South African Reserve Bank’s (SARB) monetary policy committee suggests three further interest rate hikes by the end of 2020, the SARB is unlikely to raise interest rates in January, audit firm PwC said this week.
It cited three factors, including fears of a global slowdown which had seen oil prices retreat for much of the fourth quarter of 2018, offering a reprieve for petrol prices.
PwC also noted that South AFrica’s economy remained at a cross roads in 2019, with demand pressures weak.
“South Africa’s economy is expected to bounce back somewhat in 2019 and 2020, faciliated by an anticipated cyclical upswing and improvements in economic sentiment helped by recent initiatives like the economic stimulus plan, jobs summit and investment summit,” it said, referring to measures steered by President Cyril Ramaphosa last year.
“However, the possibility of fiscal slippage and a lack of structural reforms can weigh on longer-term economic prospects.”
“Poor economic growth outcomes and indications of a tentative recovery in 2019 and 2020 are likely to prevent the SARB from raising interest rates in January, especially in the absence of additional supply-side pressures that could cause inflation to move closer to the upper end of the target range.”