South Africa's central bank is expected to maintain its current interest rates, continuing its strategy to combat inflation amid political uncertainties following the country's closest election in three decades.
Bloomberg surveyed economists who predict that Governor Lesetja Kganyago’s monetary policy committee will keep the benchmark rate at 8.25%, a level not seen in 15 years, when the decision is announced on Thursday.
A separate poll indicates that most analysts anticipate a unanimous decision.
Nedbank Group chief economist, Nicky Weimar, stated that conditions are not yet favourable for a rate cut. April's inflation report was encouraging, but the pace of disinflation is still too slow to suggest a definitive trend towards the South African Reserve Bank’s 4.5% target, Weimar said.
Although inflation has returned to the Reserve Bank’s target range of 3% to 6%, progress towards the goal of 4.5% has been slow. In April, the inflation rate decreased to 5.2%, down from 5.3% in March. Kganyago has consistently indicated that policy adjustments will occur only when inflation reliably hits and stabilizes at the midpoint of the target range.
While the recent elections are not expected to influence the immediate rate decision, some economists believe a positive electoral outcome could impact future decisions, particularly if it strengthens South Africa’s currency.
Since the last MPC meeting, the rand has gained 3%, driven by expectations that the ruling ANC will remain in power, potentially forming a coalition with a smaller party, thereby maintaining a market-friendly government.
Pre-election polls suggested ANC support might drop below 50% for the first time since 1994.
Razia Khan, chief economist for Standard Chartered Bank, noted that continued appreciation of the rand, especially following a post-election rally in South African assets, could affect the inflation outlook sufficiently to allow for earlier rate cuts.
Andrew Matheny, an economist at Goldman Sachs, expects rates to be held steady on Thursday but anticipates that the assessment of upside inflation risks will be removed, and rate cuts will begin in the third quarter.
Everest Wealth CEO Thys van Zyl said that numerous uncertainties still surround the current inflation outlook, making an interest rate cut likely only towards the end of this year.
“The Reserve Bank's monetary policy committee is expected to keep interest rates unchanged in July. The next interest rate decisions are in September and November, but it's possible that rates won't be lowered until 2025, once the Reserve Bank is confident it can sustainably meet its inflation target,” he said.
While a 25 basis point reduction is deemed possible by November, the expectation is that the rate-cutting cycle may only start in January, and by then a reduction of 50 basis points may even be on the cards, the CEO said.
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