Threat to in­fla­tion rules out fur­ther rate cuts, says an­a­lysts

The New Age (KwaZulu-Natal) - - Inside - BERNARD SATHEKGE bernards@the­newage.co.za

EX­PERTS fore­cast no more in­ter­est rate cuts for the re­main­der of this year as well as next year as fac­tors threat­en­ing in­fla­tion are ris­ing fast.

Last month, the Re­serve Bank’s mon­e­tary pol­icy com­mit­tee (MPC) cut rates by 25bps from 6.75% to 6.50%.

But since the last meet­ing of the MPC, the cock­tail of a 1% in­crease in VAT, 52c/l fuel levy and ris­ing Brent crude oil prices pose a threat to in­fla­tion and the rand.

Some economists warned South African con­sumers to fas­ten their belts go­ing for­ward as the Re­serve Bank can be forced to hike rates again if the en­vi­ron­ment be­comes dire.

“We an­tic­i­pate CPI in­fla­tion to be pub­lished by Stat SA to­mor­row to have inched to 4.1% in March from 4% the month be­fore.

“In­fla­tion should tick up as the VAT in­crease takes ef­fect. We don’t see any fur­ther hikes as a start­ing point. Our view is that rates will stay on hold for this year and likely for the en­tire 2019,” RMB econ­o­mist Mpho Tsebe said.

He said while in­fla­tion is ex­pected to re­main within the Re­serve Bank’s band tar­get of 3.6%, one of the risks go­ing for­ward is high oil prices, which in turn will im­pact on the rand and the do­mes­tic fuel price.

“Geopo­lit­i­cal ten­sions, as the US and its al­lies launched mis­sile at­tack on Syria is likely to im­pact on the oil price if it drags long.

“The price of Brent crude oil rose to $72 a bar­rel last Fri­day, the high­est level since 2014 as mar­ket par­tic­i­pants wor­ried about pro­longed geopo­lit­i­cal ten­sions in Syria,” Tsebe said.

She said that de­spite all the risks, most im­por­tant was the fact that in­fla­tion is go­ing to re­main within the tar­get band.

Jonathan Sello, in­de­pen­dent econ­o­mist and con­sumer ex­pert, warned con­sumer to tighten their belts as the threats to in­fla­tion be­come real and that it could strike a ma­jor blow to their dis­pos­able in­come, es­pe­cially the in­crease in the fuel price.

When the MPC de­liv­ered its de­ci­sion to cut rates by 25bps last month, Re­serve Bank gover­nor Le­setja Kganyago said the MPC was of the view that in light of the im­proved in­fla­tion out­look and the mod­er­a­tion in risks to the fore­cast, there was some room to pro­vide fur­ther ac­com­mo­da­tion with­out un­der­min­ing the in­fla­tion tra­jec­tory or the down­ward trend in in­fla­tion ex­pec­ta­tions.

But Kganyago warned that in this un­cer­tain en­vi­ron­ment, fu­ture pol­icy de­ci­sions will be highly data de­pen­dent and sen­si­tive to the as­sess­ment of the bal­ance of risks to the out­look.

The MPC has strongly em­pha­sised that the im­plied path re­mains a broad pol­icy guide which can and does change in ei­ther di­rec­tion be­tween meet­ings in re­sponse to new de­vel­op­ments and chang­ing risks.

“There­fore, the MPC does not mech­a­nis­ti­cally re­spond to changes in the path,” Kganyago said.

NO MOVE: Ex­perts have fore­cast that the Re­serve Bank will not cut in­ter­est rates again this year.

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