End to rate hikes may be in sight

In­fla­tion out­look a worry

The Star Early Edition - - BUSINESS REPORT - Wise­man Khuzwayo

SOUTH Africa might be near the end of the rate-hik­ing cy­cle, but should sec­ond-round ef­fects emerge that un­der­mined the long-term in­fla­tion out­look, this view might be re­assessed, the Re­serve Bank cau­tioned yes­ter­day, as it an­nounced it had kept the repo rate un­changed at 7 per­cent.

Sep­a­rately, rat­ings agency S&P Global Rat­ings said yes­ter­day ris­ing po­lit­i­cal ten­sions in South Africa amid in­fight­ing in the ANC could de­rail gov­ern­ment ef­forts to im­prove pol­icy im­ple­men­ta­tion and that the coun­try had lit­tle room to boost spend­ing.

An­nounc­ing the rates de­ci­sion of the mon­e­tary com­mit­tee (MPC), Re­serve Bank gover­nor Le­setja Kganyago said the MPC re­mained con­cerned that the longer-term in­fla­tion tra­jec­tory con­tin­ued to be un­com­fort­ably close to the up­per-end of the tar­get range.

The meet­ing was a day shorter than nor­mal and the rate an­nounce­ment was on a Tues­day in­stead of a Thurs­day, be­cause of prior en­gage­ments of some mem­bers.

Kganyago also said the Re­serve Bank’s in­fla­tion fore­cast had de­te­ri­orated since its last meet­ing. Head­line in­fla­tion is now ex­pected to only re­turn within the tar­get range (3 per­cent to 6 per­cent) dur­ing the fi­nal quar­ter of 2017, and to av­er­age 6.2 per­cent for the year, com­pared with 5.8 per­cent in the pre­vi­ous fore­cast.

The fore­cast for 2018 is more or less un­changed.

Kgangyago said: “The peak of the fore­cast re­mains at 6.6 per­cent, which was recorded in the fi­nal quar­ter of 2016, and this level is now ex­pected to per­sist in the first quar­ter of 2017.”

By con­trast, the fore­cast for core in­fla­tion is un­changed, av­er­ag­ing 5.5 per­cent in 2017 and 5.2 per­cent in 2016.

He said this in­fla­tion ex­pec­ta­tion de­te­ri­o­ra­tion was mainly due to changed as­sump­tions re­gard­ing in­ter­na­tional oil prices and do­mes­tic fuel prices, which more than off­set the more favourable ex­change as­sump­tion.

Adding to in­fla­tion woes, Fanie Brink, an in­de­pen­dent agri­cul­tural economist, said yes­ter­day that driv­ers could ex­pect fuel prices to rise in Fe­bru­ary.

He said this was ac­cord­ing to the lat­est in­for­ma­tion by the Depart­ment of En­ergy.

Ac­cord­ing to this in­for­ma­tion, Brink said as o Wed­nes­day, the price of petrol would pos­si­bly rise in Gaut­eng by 31.3c per litre and the price of diesel by 24c per litre.

The news of the un­changed repo rate ex­cited FNB chief ex­ec­u­tive Jac­ques Cel­liers.

“We are now see­ing the re­sults of con­certed ef­forts across all sec­tors to re­verse the de­cline of 2016. Last year the gov­ern­ment, labour and the pri­vate sec­tor stood to­gether to fight against a rat­ings’ down­grade,” he said.

“We have gained tremen­dous mo­men­tum and this will con­tinue, as we saw re­cently at the World Eco­nomic Fo­rum in Davos.

“I am ex­cited by our con­certed ef­forts to turn this around. There was a dip in con­fi­dence in the fourth quar­ter of 2016, ac­cord­ing to our FNB/ BER Con­sumer Con­fi­dence In­dex, but a num­ber of pos­i­tive fac­tors have re­cently emerged.

“GDP (gross do­mes­tic prod­uct) fore­casts now in­di­cate im­proved growth prospects for 2017,” added Cel­liers.

PHOTO: SIMPHIWE MBOKAZI

Re­serve Bank gover­nor Le­setja Kganyago re­mains con­cerned about the coun­try’s longer-term in­fla­tion tra­jec­tory.

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