The South African Reserve Bank’s August rate decision could go either way, Nedbank’s Economic Unit said on Tuesday.
The unit commented after the SARB released private sector credit extension (PSCE) and money supply (M3) data earlier.
PSCE rose to 20,28% year-on-year in June from 19,74% in May while growth in the broadly defined M3 measure of money supply was slightly down at 20,12% for June, compared to 20,90% in May.
”The relatively robust growth in the headline credit figure will not help to make the case for keeping rates unchanged.
”However, this figure has probably been partially distorted by corporate credit demand and some element of distress borrowing by individuals,” Nedbank said.
At the Monetary Policy Committee’s (MPC) last meeting in June, the MPC glanced over evidence that the economy was slowing and rather focused on the deteriorating inflation outlook and worsening inflation expectations.
While the rand’s recent pullback below $8 and lower oil prices were certainly good news, it was ”too early” to tell whether oil had peaked for now.
In addition, preliminary estimates suggested that the new inflation methodology might lead to inflation being between 1,5% and 2% lower next year.
”This has caused some speculation as to whether this may sway the Reserve Bank’s decision in favour of keeping rates unchanged in August,” Nedbank said.
However, the MPC had not yet taken the new methodology into account in its forecasts and seemed unlikely to do so, ”as the governor has stated that the bank will only use the official CPIX figures produced by Stats SA”.
Furthermore, the Reserve Bank’s ”hawkish rhetoric, which continued to stress generalised price pressures” remained. Nedbank added that recent wage increases of above 10% would also be of concern.
”August’s interest rate decision could swing either way. However, we believe that the MPC will hike rates by 50 basis points,” Nedbank said.
Beyond August, Nebank saw rates coming off faster and more dramatically than the market currently expected, with the first cut likely to come in April. – Sapa