SA central bank likely to keep interest rates unchanged

South African Reserve Bank file photo

JOHANNESBURG – South Africa’s central bank is likely to keep interest rates on hold on Thursday as it balances weak economic growth against rising price pressures.

The South Africa Reserve Bank cut its benchmark repo rate, at which it lends to commercial banks, by 25 basis points to 6.5 percent  at its last policy meeting in March, saying the risks to the inflation outlook had subsided.

Another cut seems out of the question as prices have risen since then, with data from Statistics South Africa on Wednesday showing consumer price inflation accelerated to 4.5 percent year-on-year in April from 3.8 percent in March.

The statistics agency said a one percentage point increase to 15 percent in value added tax which came into effect in April had an impact on the CPI figure, as did a new health promotion levy in the form of a sugar tax 

The CPI increase will not be enough to justify an interest rate hike, but the tone of central bank governor Lesetja’s policy speech will be decidedly hawkish, said First National Bank.

“Of chief concern will be the spike in the oil price which reached $80/bbl this week, as well as rand  depreciation on the back of a stronger US dollar,” it said.

“Additional risks stem from the yet to be finalised public sector wage agreement, which if not settled at or near inflation, will raise  the prospect of a wage price spiral.”

The bank’s monetary policy committee will most probably opt against hiking interest rates just yet, as this would hurt an economy seen growing only by about 1.5 percent this year, according to the National Treasury.

A fund manager survey shows that monetary policy is seen as “about right” at the moment, said Bank of America Merrill Lynch.

“Managers are divided on the path of interest rates and uncertainty is high. No move is expected by the SARB until the third quarter.”

– African News Agency (ANA)