Picture: MARTIN RHODES
Picture: MARTIN RHODES

The Reserve Bank is likely to be cautious in terms of monetary policy in the week ahead, with the risks to SA’s credit rating offsetting price-growth pressure that is well below the midpoint of the Bank’s target rate.

On Thursday the Bank’s monetary policy committee (MPC) will announce its latest stance, with consensus among the 17 economists polled by Bloomberg that the repo rate will be kept at 6.5%. No analysts are expecting a rate hike, while two expect a 25 basis point cut.

Though the rand has been steady in October and November against the dollar, analysts have warned that the recent change in SA’s credit outlook to negative by Moody’s Investors Service means that another rate cut is unlikely.

The case for a hold versus a cut is quite tight, though the Bank is likely to be cautious, said Mike van der Westhuizen, a portfolio manager at Citadel Wealth Management.

“The abysmal SA growth picture, along with lower-than-expected CPI could warrant a cut, though the governor has already conceded that monetary conditions are already accommodative and that cutting rates would not help SA’s poor structural growth,” Van Der Westhuizen said.

The Bank is likely to lower its inflation forecasts, though ongoing electricity tariff applications from Eskom and SA’s drought may pose a risk to the inflation outlook, he said.

There is a very small chance of a cut, and the Bank is likely to keep rates unchanged, said Capital Economics senior emerging-markets economist John Ashbourne. 

“Policymakers will be especially cautious at the moment in the context of the Moody’s outlook, pressure on the rand and the ending of the US Federal Reserve’s interest rate cutting cycle,” said Ashbourne. “So I am afraid that the Bank isn’t likely to step in to provide any support,” he said.

Inflation for October is expected to be unchanged from the previous month, at 4%, according to the Bloomberg consensus.

This latest inflation print is below the midpoint of the Bank’s 3%-6% target band, at which it prefers to anchor inflation. Major central banks have adopted easier monetary policy stances. The Bank has previously emphasised that it looks at longer-term trends, as opposed to single months.

NKC African Economics senior economist Elize Kruger expects inflation to moderate to 3.9% year on year in October, which would be its lowest level since March 2018.

Kruger said the Bank is likely to keep rates on hold because of the risks of credit ratings actions from global agencies in coming months.

“Another contributing factor is the dismal fiscal scenario, which is calling for a higher risk premium to be offered to investors and therefore plays into a scenario of unchanged interest rates for some time,” she said.

gernetzkyk@businesslive.co.za