ECONOMIC WEEK AHEAD: Interest rates expected to remain steady
Analysts are forecasting the monetary policy committee will leave the repo rate unchanged amid improved growth
Following dovish comments from the US Federal Reserve last week, close attention will be paid to this year’s first meeting of the SA Reserve Bank’s monetary policy committee (MPC) this week.
Economists will also be watching to see 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.
After hiking the repo rate by 25 basis points for the first time in two years to 6.75% at its November meeting, economists expect the MPC to keep the policy rate steady when it announces its decision on Thursday.
“The underlying growth and inflation dynamics still support a neutral monetary stance,” says Nedbank senior economist Nicky Weimar.
The lower oil price and a R3-per-litre decline in the petrol price will most likely see the Bank revise its inflation projections lower, says FNB chief economist Mamello Matikinca.
“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,” Weimar said.
This will be the final MPC for deputy governor Francois Groepe, who resigned in early January, which will leave just five members on the panel. However, this is not likely to sway policy-making 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 said.
On the global front, US monetary authorities have adopted a more dovish tone. However, 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 said.
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 see a significant boost on the back of Black Friday and Cyber Monday sales. The Bloomberg consensus is for a 2.5% increase.
Mining, on the other hand, is likely to be softer, following “a high base, and strikes should have weighed on total gold production, while excess inventories may have discouraged accelerated iron ore production”, said FNB’s Matikinca.
Capital Economics economist John Ashbourne expects GDP growth to ease in the fourth quarter after a very strong third quarter. However, activity is still expected to be strong compared to recent standards, he said.