Global analysts Lehman Brothers said on Wednesday that they viewed central bank governor Tito Mboweni’s speech on Tuesday as “mildly hawkish”.
However, they added that given the “surprise versus the rhetoric” at the last meeting, they think these comments should be treated with caution. They are sticking with their call of a rate hike on August 14.
The analysts appeared to be referring to a May 28 speech — just prior to the June 12 rates decision — in which Mboweni said the task of the central bank was to maintain inflation in the 3% to 6% target band, and with CPIX inflation at 10,4% at the time, “drastic” measures were required. He said he and his colleagues had discussed the impact on the economy of raising by 200 basis points. CPIX is now at 11,6% year-on-year (y/y), but analysts feel the peak is in sight.
Mboweni’s latest speech was to students at the University of the Witwatersrand.
“While his speech was wide ranging, he did make some specific references to policy. He said that inflation pressures were ‘more generalised’ now, and that the MPC was ‘clearly concerned’ and everyone ‘must do [their] bit to bring inflation down to target range in the medium term’,” noted the Lehman analysts.
Mboweni also scotched talk that inflation targeting was not working and should be abandoned, emphasising that it garnered accountability in the management of the economy.
His comments come ahead of next week Thursday’s key interest-rate decision.
On June 12 the South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) increased the repo rate by 50 basis points to 12%.
Mboweni noted at the time that there were major inflationary pressures building up, with the electricity decision to be made next week weighing heavily. He added that the MPC was mindful of the fact that the economy was responding to the tightening, but that risks to inflationary expectations had deteriorated further.
CPIX was at 10,9% y/y in May — the latest reading the MPC had at the time of their June 12 meeting. Some of the more hawkish analysts spoken to by I-Net Bridge feel that the higher CPIX will weigh on the MPC and they may well decide to hike again. – I-Net Bridge