The Reserve Bank is expected to cut interest rates again in November — or possibly September — given the relatively tame inflation outlook, a Reuters poll found on Friday.

The Bank unexpectedly cut its repo rate by 25 basis points to 6.75% for the first time in five years in July, taking advantage of slower inflation to support a sickly economy.

While 11 of 27 economists in the latest Reuters poll taken this week forecast an interest rate cut of varying amounts next month, the Bank was seen as more likely to only make a cut at its meeting in November. Only five economists polled forecast rates being kept on hold until the end of the year. The survey median was for rates to be cut by another 25 basis points to 6.5% in November, and then kept on hold until early 2019.

"We think there is a small window here to cut. It would be quite easy to justify three cuts in a row: July, September and November," said Citi economist Gina Schoeman. "But then again, the Reserve Bank is more prudent, which adds to their credibility, which is why they will pause in September."

However, Schoeman said should the Bank wait, it could be faced with problems in the first half of next year as markets get more volatile on concerns about potential sovereign ratings downgrades. The rand has been relatively flat since last month’s rate cut. It was forecast in a recent Reuters poll to weaken almost 2% over the next six months, but to still hold on to some of the year’s gains.

"We assume they won’t downgrade us this year, but all of the negative outlooks will expire by the middle of next year," Schoeman said.

With inflation slowing to 5.1% in June and expected to average just 5.4% in 2017 and 5.2% in 2018, a few economists suggested the Bank could cut go for growth and cut rates by a full percentage point by year-end and finish next year at 4.75%. Poll medians for growth also indicated that SA probably escaped another contraction in the past three months, likely growing by an annualised 0.8%. Growth is expected to remain poor, averaging 0.6% this year and 1.2% next year.

On Wednesday, just a week after President Jacob Zuma survived a no-confidence vote in Parliament, Moody’s ratings agency said that political tensions in the ANC will weigh on the country’s growth.

The ANC is due to pick a successor to Zuma in its December leadership conference, a candidate likely to be the face of its 2019 election campaign.


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