SARB expected to keep rates on hold
The South African Reserve Bank’s Monetary Policy Committee (MPC) is widely expected to keep the repo rate unchanged at its meeting this week‚ but economists say further interest rate hikes this year are probable.“Consensus expectations are for no hike in the repo rate in May‚ which is also the market’s view and ours. The rand has pulled back from its historic weak point of R16.97/USD‚ R18.58/EUR and R24.68/GBP mid January 2016‚ SA did not get a credit downgrade from Moody’s and global monetary policy authorities are more dovish.“The possibility clearly exists for the MPC to pause in May‚ but it has yet to display significantly less hawkish communications. Further interest rate hikes this year are probable‚ bringing the repo rate to 8.00% by 2017‚” says Investec economist Annabel Bishop.FNB Economist‚ Mamello Matikinca agrees‚ noting that since the MPC’s last meeting in March‚ the rand has depreciated notably and inflation has positively surprised.“While a positive inflation print will most likely lead to a downward revision of the SARB’s inflation projections and probably a softer inflation peak in the final quarter of the year‚ it will not be enough to avert further rate hikes.“We expect inflation to average 6.6% this year‚ in line with the SARB’s current forecast. We maintain our view of an additional 50 basis points of hikes this year‚ we believe the SARB will move again in the second half of the year‚” says Matikinca. ..
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