Steady hold on rates as SA battles inflation

The Reserve Bank is expected to leave interest rates unchanged at its July 20 meeting, according to a Reuters poll of economists.

However, the experts do expect a "dovish" statement as the bank gets closer to its easing cycle.

Twenty-four of 27 economists said the Reserve Bank would hold rates at 7% tomorrow at its quarterly monetary policy committee meeting.

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 bank 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 MPC could vote in favour of a 25-basis-point cut. At the committee's 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.

At 5.4% in May, inflation has been slowing after a drought last year and will probably average 5.4% this year and 5.3% next year.

The rand is expected to end this year at R13.60 per US dollar. It is currently at R12.96 with slower rate increases now expected in the US.

Wall Street's top banks brought forward expectations for when the US Federal Reserve will begin reducing its $4.5-trillion (about R58.4-trillion) bond portfolio to as early as September. They see balance sheet reduction as more of a priority than another rate rise.

South Africa's economy is expected to expand 0.7% this year and 1.2% in 2018, after contracting 0.7% in the first quarter.

South Africa's finance minister has laid out a 14-point plan to lift the economy out of recession. It includes the sale of non-core assets and partial privatisation of state-owned firms.