Reserve Bank governor Lesetja Kganyago. Picture: FREDDY MAVUNDA
Reserve Bank governor Lesetja Kganyago. Picture: FREDDY MAVUNDA

The strong rand and a contained inflation rate within the 3%-6% target band are highly unlikely to result in an interest-rate cut announcement from the South African Reserve Bank’s monetary policy committee on Thursday.

At the committee’s previous meeting in November interest rates remained at 6.75%, but Bank governor Lesetja Kganyago flagged a weaker rand, political uncertainty in the build-up to the ANC conference and prospects for further credit-ratings downgrades as areas of great concern.

Since then, the rand has strengthened significantly and this was attributed mainly to the election of Cyril Ramaphosa as ANC president.

If the ANC wins the 2019 general elections, SA will have Ramaphosa as head of state, a respected businessman, who is largely perceived to be market friendly.

However his victory is unlikely to spur interest-rate cuts as political risk still remains. "The rand still remains vulnerable to fiscal and sovereign credit ratings outcomes during the first quarter of 2018," said Investec economist Kamilla Kaplan.

The monetary policy committee’s new quarterly projection model, with its explicit 4.5% inflation target, could encourage the Bank to be more hawkish.

Kganyago emphasised that the Bank did not have an unconditional commitment to change policy rates in line with the model, but the model suggested three interest-rate rises of 25 basis points each by the end of 2019.

In the interim, the Bank was expected to hold off on changes to the repo rate until the 2018 budget in February. Consumer and producer inflation were expected to remain below the Reserve Bank’s 6% upper target range over the next few months, said NKC economist Elize Kruger.

It was unclear if Ramaphosa could decisively and immediately tackle corruption, restore fiscal sustainability, improve confidence and lift growth, said Nedbank economist Busisiwe Radebe.

Universal junk status would have a damaging effect on capital flows, asset prices, interest rates and the rand.

"There are too many risks over the medium term to spur the committee to move in either direction," said FNB chief economist Mamello Matikinca.

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