The Reserve Bank in Pretoria. Picture: FINANCIAL MAIL
The Reserve Bank in Pretoria. Picture: FINANCIAL MAIL

The Reserve Bank’s decision on whether to raise interest rates for the first time in more than two years will likely be a close one, with economists almost split down the middle.

It is the first monetary policy committee (MPC) meeting since the retirement of Brian Kahn, presumed to have been a
dove, which means that if the remaining six members are split, governor Lesetja Kganyago will have the deciding vote.

While the Bank has succeeded in keeping inflation within its 3%-6% target range since April 2017, Kganyago has repeatedly said that he would want to see it closer to the middle of that range.

Inflation accelerated to 5.1% in October, driven mostly by record fuel prices, data from Stats SA showed on Wednesday.

Of the 21 economists in a Bloomberg survey, 11 said that they expect a 25-basis point increase in the repurchase rate to 6.75%, while the rest expect it to remain unchanged.

A hike on Thursday would be the first since March 2016.

The MPC changed the rate only once in 2018, cutting it by 25 basis points in March.

"The decision whether to embark on a hiking cycle in November, or delay to 2019, will likely be contentious  among MPC members, with a unanimous decision unlikely," said Absa senior economist Peter Worthington.

A rate hike would present another knock for SA’s  consumers and President Cyril Ramaphosa, who is struggling  to boost the economy and  make some headway against  an unemployment rate of  more than 27% before elections in 2019.

The economy slipped into a recession in the first half, strengthening the view that demand pressures would not pose a risk to the inflation outlook. The outlook has also been improved by the rand gaining about 2% against the dollar, while Brent crude oil prices are down about 20% since the MPC last met in September.

The rand firmed as much as 1.38% to R13.8984 against the dollar on Wednesday, as some economists argued there was still room for the Bank to raise rates on Thursday.

With the Bank’s inflation forecast close to the 5.5% mark over its six to 24 month forecast horizon, and Kganyago adopting a hawkish stance, a rate hike was still possible, said FNB chief economist Mamello Matikinca.

Retail sales, manufacturing production and mining figures had all come in below the market consensus recently, highlighting the fragility of SA’s economic recovery, Novare economic strategist Tumisho Grater said.

Policymakers will, as a result, "hold their fire", said John Ashbourne, an economist at Capital Economics.