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

Borrowing costs will take centre stage in a busy data week, and  the Reserve Bank’s decision on interest rates and a potential Moody’s credit ratings action could both hold surprises.

Although a benign domestic inflationary environment, slower global growth and lower-for-longer interest rates have eased pressure on the Reserve Bank’s monetary policy committee to tighten rates, economists expect the committee to retain the repo rate at 6.75% on Thursday.

PODCAST: Listen to more commentary on the topic.

John Ashbourne, senior emerging-markets economist, said: “We expect that inflation has now bottomed out.” Inflation is well below the central bank’s 4.5% mid-point of its 3%-6% target range. February’s year-on-year inflation print was 4.1%.

Ashbourne said, however, that electricity tariff hikes and higher petrol prices from April are a risk to the inflation outlook, although headline price pressures will remain weak by recent standards.

Tepid GDP growth and weak inflation could strengthen the case for a rate cut in the longer term. “We pencilled in a 25 basis point cut in early 2020 while other analysts expect a hike,” he added.

But borrowing costs could rise if Moody’s decides to downgrade SA’s credit rating to sub-investment, or junk, status on Friday, triggering more than R100bn in investment outflows from the economy. This could force the Reserve Bank to hike interest rates to contain the inflationary pressures from a selloff of the rand. Moody’s is the only international ratings agency that has SA on investment grade.

Some economists forecast Moody’s will downgrade only the outlook from stable to negative and retain the rating on investment grade — for now. Moody’s has an 18-month window period in which to change the rating.

Sanisha Packirisamy, economist at Momentum Investments, said the government’s expenditure ceiling was breached following an emergency intervention to provide at least R23bn a year for Eskom’s debt costs over the next three years. Moody’s was concerned but noted this as a one-off event.

Weak economic growth is another concern. “Moody’s takes a longer-term view and in that respect trend growth will have a bigger impact on the rating relative to growth in the first half of 2019.” But protracted load-shedding may dampen prospects for trend growth and SA’s rating, Packirisamy said.

This week will also see the release of employment statistics for the fourth quarter of 2018, the FNB/Bureau for Economic Research civil confidence index and the Reserve Bank's leading business cycle indicator on Tuesday.

Mamello Matikinca-Ngwenya, FNB’s chief economist, forecast the building confidence index would remain below the 50-point neutral mark, which has been the case for the past nine quarters. The employment data, which excludes agriculture and private households, may show “a mild uptick” due to temporary employment in retail during the festive season.

Matikinca-Ngwenya forecast “a dreary print” in January for the Reserve Bank’s leading business indicator, which slipped into contractionary territory in December.

On Thursday the producer price index for February is forecast to reflect contained inflation for final manufactured goods due to relatively low international oil prices during the month.

The week concludes with February trade statistics on Friday.