Too many risks still for rate cuts

THE rand’s relative strength since Cyril Ramaphosa’s victory at the ANC elective conference last month has prompted some economists to expect interest rate cuts in 2018. But this is unlikely at this week’s monetary policy committee meeting as local and global risks still cloud the horizon.

An economist at BNP Paribas, Jeffrey Schultz, said the Reserve Bank would have “room for manoeuvre” if the rand held on to its gains and if inflation undershot the bank’s estimates.

The Reserve Bank could easily cut rates after the February budget, but this week’s meeting would be too soon to do so. Schultz said two 25-basis-point reductions were possible this year – in March and May.

At the last MPC meeting, in November, interest rates remained unchanged at 6.75%. At the time, Reserve Bank governor Lesetja Kganyago highlighted the weaker rand, the poor employment outlook, uncertainty over the ANC conference, the tightening of US monetary policy, a rise in the oil price and negative reaction to the medium-term budget policy statement as issues of concern.

A few of those factors have been mitigated since then – particularly the rand, which has strengthened by 8% over the past year. On the back of the rand’s strength, six out of the 10 economists polled by Business Times last week expect cuts if the rand maintains the gains it has made. —