BUSINESS MAVERICK 168: SA Reserve bank likely to hold off cutting rates

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Business Maverick: SA Reserve bank likely to hold off cutting rates

The Monetary Policy Committee of the South African Reserve Bank will likely exercise caution and hold rates again in the face of bubbling inflation pressures such as surging oil prices. Yet the weak state of domestic demand and the fragile state of the economic recovery give it cover to cut again, if it chose to do so.

FNB said the sub-index that measures the “appropriateness” of buying durable goods such as vehicles, furniture and household appliances fell to -30 from -32. Such goods would often be purchased on credit, so the setback suggests that significantly lower rates have not goaded consumers into going on a big-ticket-item buying spree.

“The SARB will likely keep rates unchanged next week,” FNB chief economist Mamello Matikinca-Ngwenya told DM168. She noted the red lights that will not be lost on the Monetary Policy Committee, notably rising oil, food and electricity prices. Pieter du Preez, senior economist at NKC African Economics, said “the expectation of this round’s meeting is a hold”, with no expectations of another cut “if current economic conditions continue”.

“Moreover, electricity tariffs are set to rise more than 15% in April. As a result … we see inflation moving close to the upper bound of the target range for a brief period, before declining to just above the mid-point of the target range in [the third quarter]. MPC members will also be cognisant of the second-round effects of these rising price pressures,” he said.

 

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