Repo rate should stay at 7%
The Reserve Bank (Sarb) is expected to leave interest rates unchanged at its meeting tomorrow, according to a Reuters poll released on Monday.
But economists expect a dovish statement as Sarb gets closer to its easing cycle.
Twenty-four of 27 economists said Sarb will hold rates at 7.00% today. Two predicted a 25-basispoint cut and one expects the repo rate to be cut by half a percent.
Economic growth in SA 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 Sarb 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, BNP Paribas economist.
Schultz said at least two members of the monetary policy committee could vote in favour of a 25-basis-point cut tomorrow. At its 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 around 13.60 per dollar. It was at 12.96 yesterday with slower rate increases now expected in the US. Wall Street’s top banks brought forward expectations for when the Federal Reserve will begin reducing its $4.5 trillion bond portfolio to as early as September. They see balance sheet reduction as more of a priority than another rate rise.
SA’s economy is expected to expand 0.7% in 2017 and 1.2% the following year, after contracting 0.7% in the first quarter. – Reuters