Cape Town – Consumers possibly have this week’s “political shenanigans” to thank for the decision by the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) to leave interest rates unchanged, rather than cutting rates by 0.25%, according to David Crosoer, executive of research and investments at PPS Investments.
“Despite recent political uncertainty, the MPC nevertheless gave its strongest indication that the interest rate cycle may have peaked and that inflation was expected to be back in the 3% to 6% band soon,” said Crosoer.
Nedbank’s economic unit pointed out that the MPC decision was broadly expected, although some had expected that the statement would be more hawkish compared to the January statement following the recent political turmoil and, therefore, rand volatility.
“The country is on a knife edge as the finance minister’s future hangs in the balance. Provided the current efforts within the ANC and its alliance partners continue to be successful in averting the unthinkable, the chances of the rand stabilising and even strengthening are good, which will allow for some easing in monetary policy later in the year as inflation falls more convincingly into the target range,” Nedbank said in a statement.
“However, if efforts to subvert good governance are successful the rand will be hurt by weak investor confidence and an almost inevitable sovereign ratings cut to sub-investment grade, pushing interest rates up in the short term. Our central scenario remains for two cuts of 25 basis points each in the second half of the year.”
Sanisha Packirisamy, economist at MMI Investments and Savings, said SARB’s interest rate decision was in line with the Reuters consensus, in which all 29 surveyed analysts predicted that interest rates would stay on hold at 7%.
“Despite marginally raising its growth projections and adjusting its inflation forecasts lower, the MPC noted that it would like to see a more sustained improvement in the outlook for inflation before reducing rates. We expect the MPC to consider commencing a shallow interest rate cutting cycle in late 2017,” she said.
“Uncomfortably high inflation expectations and the need to maintain an attractive real interest rate profile – to attract foreign capital to cover SA’s external imbalance which is set to widen from levels observed in the fourth quarter of 2016 – are likely to limit the extent of interest rate cuts, in our view.