Close call in poll on rate hike or hold

The SA Reserve Bank (Sarb) will keep interest rates on hold at its November 22 meeting, according to a Reuters poll, but the number of economists forecasting a rise suggests it is a very close call.

In a poll taken in the past week, 16 of 26 economists said Sarb would keep its repo rate at 6.5%, while the rest opted for a 25 basis-point hike.

As a whole, economists gave a median 45% chance of a hike this month, suggesting the bank may not wait until January or March before raising the rate to 6.75%.

“The probability of a rate hike is increasing, and if it was not for a stronger rand after the US midterm election and the lower international oil price, the probability could have been in favour for a rate hike in November,” said Johannes Jordaan at Economic Modelling Solutions.

The rand has rallied this month back to the firmer R14 per dollar area after hitting this year’s weakest level at R15.69 two months ago.

At the last meeting, four members of the monetary policy committee voted for no change and three for a 25-basis point increase, but bank governor Lesetja Kganyago struck a more hawkish tone.

“There is an argument for the Sarb acting more proactively now at this stage of the cycle, to avoid having to tighten even more later on in the cycle,” said Razia Khan at Standard Chartered.

“For any inflation-targeting central bank uncomfortable about the suggestion that inflation may stay towards the upper end of the inflation target range, that is, too close to 6%, we think there is a very compelling reason to tighten,” Khan said.

She said Standard Chartered hadn’t seen anything suggesting US economic momentum would fade sufficiently for the Fed not to keep tightening and so emerging markets are still at risk.

Still, a separate Reuters poll this month expected the rand to be 2% higher in a year as local economic reforms kick in, but it may be held back by a more hawkish US Federal Reserve. The Fed has raised interest rates eight times since December 2015, including three times this year, and is expected to raise again next month.