By Vuyani Ndaba
JOHANNESBURG – The South African Reserve Bank is set to hold its repo rate at 7 percent next week and through next year, with inflation due to peak in December and then slow to within its target range, a Reuters poll showed on Thursday.
All but one of 33 economists in the poll taken in the past few days expect the Bank to hold rates at its Nov. 24 meeting despite a widely-expected U.S. interest rate rise the following month, which is likely to weaken the rand.
While one economist forecast a 25 basis point rate hike to 7.25 percent, the median probability in the poll was just one-in-five. Rates are likely to stay on hold for the next two years, according to the poll, as inflation remains benign.
The SARB tries to keep inflation in a 3-6 percent range.
While consumer inflation quickened to 6.1 percent year-on-year in September from 5.9 percent in August, economists expect it to slow to an average of 5.8 percent in 2017 from a forecast of 6.3 percent this year.
“We do not think that the Reserve Bank moves in lock-step with the Fed. The SARB will look through the peak in inflation in December,” said Kim Silberman, an economist at Standard Bank in Johannesburg.
She said that if there is no drought next year, that would save substantial costs of importing corn from the second quarter onwards and would also slow food inflation. Silberman is one of the six economists who expect rates to be cut next year.
Economic growth is expected to remain subdued at 0.4 percent for this year, in line with the Reserve Bank’s own forecasts, followed by just 1.1 percent next year.
As with recent years, South Africa’s economic prospects will depend in large part on how well the world economy performs.
So far, the president-elect of the world’s biggest economy, Donald Trump, has not inspired confidence among economists in Africa, which has been short of foreign demand for commodities since China began efforts to rebalance its economy toward domestic demand.
Twelve out of 16 economists said Trump’s presidency will have a negative impact on Africa’s growth performance in the next two years. The other four said it would be positive.
“His campaign did not mention a word about his African foreign policy,” said Thabi Leoka, economic strategist at Argon Asset Management. “His policies are inward-looking, protectionist and exclusionary.”
Trump has pledged dramatic tax cuts, infrastructure spending and economic deregulation. (Reuters)