Mixed views on when Bank will hike rates

July’s petrol price hike might not feature in the Reserve Bank’s deliberations scheduled for this week, but other factors may cause a cautious central bank to maintain rates.

A weaker rand, poor economic growth and lower consumer price index (CPI) inflation so far may subdue the Bank’s decision. But the weaker exchange rate and high wage settlements present upside risks to the inflation outlook.

Petrol rose by between 23c and 26c a litre and diesel by 26c in July, a third consecutive rise.

Miyelani Maluleke, vicepresident of research at Absa Corporate & Investment Banking, said: “We see the bar for rate hikes as very high in the near term and expect the Reserve Bank to hike only in the third quarter of 2019.”

Nedbank economist Isaac Matshego said: “We maintain the view that the start of a moderate hiking cycle will be in the second half of 2019”, as the Bank would delay hiking rates as long as possible.

However, HSBC predicts a 25 basis-point hike in November 2018. “Rate hikes could be brought forward in response to a worsening inflation trajectory,” economists David Faulkner and Thato Mosadi wrote in a note on Friday. The Bank’s model forecasts a 25 basis-point hike by the end of 2018.

Meanwhile, consensus among economists surveyed by Trading Economics is for inflation to accelerate to 4.8% in June from 4.4% in May.

Inflation data will be published on Wednesday. Rand weakness and fuel price hikes are big contributors. Economists predict inflation could peak at 5.5% in 2019, but rand weakness and higher electricity and oil prices are risks.

On Wednesday, retail sales for May are expected to reflect a slight growth as business conditions in the sector weakened during the second quarter. NKC Economics predicts 0.7% compared with 0.5% in April. The consensus among a panel of economists surveyed by Trading Economic survey is for 1.3%.

Elize Kruger, a senior economist at NKC African Economics, cited a rise in inflation, a dent in disposable income, a VAT increase and fuel hikes in May as weighing negatively on retail trade.

Consumer disposable income is under pressure and this is expected to result in a decline in the FNB-BER Consumer Confidence index in the second quarter. The index will be published on Tuesday.