Reserve Bank expected to hold rates steady

Economists polled by Business Day were initially split on the Reserve Bank’s next move as the monetary policy committee (MPC) prepares to announce its latest interest rate decision today.

However, the release of consumer inflation data for February and the US Federal Reserve’s decision to keep US rates unchanged have increased the chance of the Reserve Bank maintaining the repo rate at 7.50%.

Thursday’s decision is expected to balance inflation risks, global economic uncertainty and domestic fiscal pressures.

Anchor Capital economist Casey Sprake said the government’s recent announcement of a 0.5 percentage point VAT increase could add upward pressure on prices, potentially dampening consumer spending.

Given these risks, she believes the Reserve Bank will err on the side of caution and hold rates steady.

The Business Day survey of eight leading economists on Monday resulted in a deadlock, with half expecting a hold and half predicting a 25 basis point cut.

However, new Stats SA data showed that while annual consumer inflation remained at 3.2% in February, month-on-month inflation surged to 0.9% from 0.3% — driven by rising costs in fuel, financial services and food.

The increase in cost pressures has led some analysts to shift their expectations towards a more cautious stance from the MPC.

While the outlook for interest rates remains finely balanced, the combination of the Fed’s decision, persistent domestic cost pressures and fiscal uncertainties has made a rate hold the more likely outcome.

However, the Business Day survey also shows that rate cuts later in the year are still on the table, provided inflation remains contained and economic conditions improve.

marxj@businesslive.co.za