Bank expected to hold repo rate unchanged
Following dovish comments from the US Federal Reserve last week, close attention will be on this year’s first meeting of the SA Reserve Bank’s monetary policy committee (MPC).
Economists will also be watching whether data from Stats SA points to a continued recovery in the economy after SA exited its first recession since the global financial crisis in the third quarter.
Economists expect the MPC to keep the policy rate steady when it announces its decision on Thursday, after hiking the repo rate by 25 basis points for the first time in two years to 6.75% in November.
“The underlying growth and inflation dynamics still support a neutral monetary stance,” says Nedbank senior economist Nicky Weimar.
FNB chief economist Mamello Matikinca says lower oil prices and a R3 per litre decline in the petrol price will most likely see the Bank revise its inflation projections lower.
Weimar says: “This should be sufficient to convince the Bank MPC to leave interest rates on hold until around November, when the MPC is forecast to resume its mild tightening cycle.”
This will be the final MPC for deputy governor Francois Groepe, who resigned in early January. It will leave just five members on the panel.
However, this is not likely to sway policymaking decisions in a meaningful way, says Momentum Investments economist Sanisha Packirisamy.
“The Bank takes into account a number of inputs, including global developments, local data, inputs from the research department and the outcome of the quarterly projection model, in addition to the views and opinions of all the members of the MPC,” she says.
On the global front, concerns over global growth have come to the fore, as has the recent weakness of global markets, says Investec chief economist Annabel Bishop.
Locally, risks abound, “ranging from fiscal performance, and particularly the threat of credit rating downgrades, to the upcoming national election, which is likely to see amplified political uncertainty and populist rhetoric”, she says.
Momentum Investments expects up to two interest rate hikes, of 25 basis points each, during the course of 2019 and 2020, while Investec does not anticipate any rate changes for the first half of 2019.
Tuesday and Wednesday will provide more clarity on how the economy performed in the fourth quarter of the year as mining and retail data comes to the fore. The retail sector is expected to have received a significant boost from the Black Friday and Cyber Monday sales. The Bloomberg consensus is for a 2.5% increase.
Mining might be softer, coming from a high base, strikes should have weighed on total gold production and excess inventories may have stunted accelerated iron ore production, says Matikinca.
TUESDAY AND WEDNESDAY WILL PROVIDE MORE CLARITY ON HOW THE ECONOMY PERFORMED IN THE FOURTH QUARTER