POLL-Reserve Bank expected to hold rate at record low through 2021

South African Reserve Bank is likely to leave the repo rate at a record low at its November 19 meeting and over the coming year, too, as inflation is expected to quicken in coming months, a Reuters poll found on Friday.

In a poll conducted in the past week, 17 of 22 economists expect Reserve Bank Governor Lesetja Kganyago to hold rates steady at 3.5%, after cutting them a cumulative 300 basis points earlier this year as the coronavirus pandemic swept the world. The remaining five analysts forecast a 25-basis-point cut.

Investec economist Annabel Bishop expects no change in the repo rate next week. However, she said that next year rising consumer price inflation will put expectations of no change in interest rates in the first half of 2020 at risk.

“Base effects will lift the year-on-year inflation next year from the start of the second quarter in 2021, to above 4.0%,” she said, ushering a negative interest rate differential in the second quarter of 2020 without an adjustment.

The Reuters poll median forecasts suggest consumer inflation will average 3.9% next year, up from an estimated 3.3% this year. The Reserve Bank tries to keep inflation between 3% and 6%.

Coronavirus infections have been increasing in much of the developed world in the past few weeks, but much more slowly in most of sub-Saharan Africa.

South Africa, Africa’s second-largest economy, accounts for most cases on the continent, with more than 740,000 Covid-19 cases and over 20,000 deaths. Infections have been rising since it eased lockdown restrictions in September.

Still, South Africa will open up travel to all countries in an effort to boost tourism and hospitality, President Cyril Ramaphosa said on Wednesday.

“The Sarb would probably prefer to keep some ammunition for later in the event of a second wave of Covid damaging the economy,” said Francesca Beausang, economist at Continuum Economics.

South Africa’s economy is expected to grow 3% next year after contracting 8.2% this year, an improvement from last month’s expectations, which suggested growth of 3.5% from an 8.5% contraction.

Quarterly growth at a seasonally adjusted annualised rate is expected to taper to 9.9% in the current quarter from a 34.6% rebound estimated for the previous quarter.

GDP growth contracted by 51.0% in the second quarter of 2020 after the government paused activity in a lockdown that lasted roughly five months. That was the fourth contraction for an economy that was already struggling before the pandemic hit.