The Monetary Policy Committee (MPC) is expected to meet to determine whether interest rates should be changed ahead of South Africa’s national budget by the new Reserve Bank governor Lesetja Kganyago who took over from Gill Marcus when she retired last year.
Peter Attard Montalto, an economist with Nomura emerging markets said the probability was that MPC will not change its rates which are currently pegged at 5.75% this month. The MPC is supposed to meet on Tuesday to Thursday January 27 to 29.
In last year’s review of the South Africa Reserve Bank (SARB) Nomura had noted that the MPC meeting hiked the rates due to an outflow shock that hit South Africa and other emerging markets more generally in the two weeks before the meeting.
Montalto said though the risk of hiking rates was there the drop in the price of oil is a reflection that oil prices will be hiked. But Kganyago a former treasury director last year said that the reduction in oil prices and food prices helped to recover the inflation outlook. He added that SARB waited in a steady policy tightening cycle.
The governor warned of a prolongation in the rate hiking cycle citing that rates would ascend in future depending on what happened to the inflation outlook and domestic economic growth. He mentioned that the hike in the US’s interest rates has an influence on the South African rand.
Meannwhile, Nomura believes that MPC will uphold its worry about South Africa’s vulnerability regarding currecy, wages and inflation expectations which result to worries about the long run trajectory for core inflation.