BUSI­NESS Ex­perts ex­pect repo rate to stay put

Re­serve Bank likely to make small ad­just­ment later in year

Weekend Argus (Saturday Edition) - - LIFE - VUYANI ND­ABA

THE Re­serve Bank will not raise its repo rate next week but will add 25 ba­sis points in Novem­ber as wage talks and higher food prices threaten to stoke in­fla­tion, a Reuters poll said.

All 31 econ­o­mists sur­veyed in the past few days said the bank would keep its repo rate at 7.0 per­cent on Thurs­day but the me­dian fore­cast sug­gested it would add 25 ba­sis points at its Novem­ber meet­ing.

The bank has upped in­ter­est rates by 200 ba­sis points in the past two-and-a-half years.

“We think the SARB will stay on hold in July,” said Peter Wor­thing­ton, econ­o­mist at Absa Cap­i­tal. “The SARB re­mains con­cerned about a con­tin­u­ing breach of con­sumer in­fla­tion above the tar­get range, and is aware that de­spite the weak­ness of de­mand, in­fla­tion risks re­main on the up­side.”

In­fla­tion is ex­pected to av­er­age 6.6 per­cent, above the 3-6 per­cent tar­get range this year, the con­sen­sus of econo- mists showed. That was un­changed from the pre­vi­ous month’s con­sen­sus.

It should slow to just above the tar­get at 6.1 per­cent next year, they said.

Wor­thing­ton said the SARB’s mon­e­tary pol­icy de­pends sig­nif­i­cantly on how the rand be­haves and the de­gree of pass- through to prices.

Ma­jor cen­tral banks are now pon­der­ing eas­ier mon­e­tary pol­icy due to es­ca­lated global po­lit­i­cal un­cer­tainty af­ter Bri­tain’s vote to leave the EU late last month – with the US Fed­eral re­serve the only ma­jor bank ex­pected to hike this year.

How­ever, the win­dow of op­por­tu­nity for South Africa to pause a bit longer on its hik­ing cy­cle, or be­gin eas­ing, could be de­ter­mined by the out­come of in­dus­try- wide wage ne­go­ti­a­tions this quar­ter.

“In­fla­tion ex­pec­ta­tions are in­creas­ingly com­ing into the fo­cus for the SARB and hence above-in­fla­tion wage de­mands may in­duce the SARB to hike later in the year,” said Luke Doig, se­nior econ­o­mist at Credit Guar­an­tee In­sur­ance.

De­mand for above-in­fla­tion pay rises al­ready look set to ag­gra­vate the cen­tral bank’s dilemma of how to keep a lid on in­fla­tion with­out snuff­ing out al­ready slow eco­nomic growth.

This year’s wage-bar­gain­ing sea­son has be­gun in the power, au­to­mo­tive and min­ing sec­tors, with ini­tial de­mands rang­ing from 13 to 20 per­cent, above the cur­rent in­fla­tion rate of 6.1 per­cent.

Econ­o­mists also pointed to a pickup in food in­fla­tion to­wards the end of the year, caused by drought, as one of the main drivers.

Growth in South Africa is ex­pected to slow to 0.3 per­cent this year from 1.3 per­cent last year, 0.1 per­cent­age points lower com­pared to last month’s poll.

The econ­omy is ex­pected to grow 1.2 per­cent next year, still not enough to cre­ate jobs for the quar­ter of the labour force cur­rently un­em­ployed. Even Nige­ria, Africa’s big­gest econ­omy, is reel­ing from a global com­mod­ity slump that has hit ex­ports.

Still, econ­o­mists ex­pect min­i­mal con­ta­gion risks to South Africa from Bri­tain’s EU vote.

Over­all, emerg­ing mar­ket cur­ren­cies will prob­a­bly be spared deeper sell- offs this quar­ter as ma­jor cen­tral banks sup­port their re­spec­tive economies. – Reuters

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