The South African Reserve Bank kicked off a two-day policy meeting on Wednesday to decide on interest rates, with the repo likely to remain unchanged despite rate cuts in other countries.
All 26 economists polled by Reuters last week predicted the repo will stay flat at 12%, with concern about record high inflation countered by worries over slowing consumer spending and economic growth.
Reserve Bank Governor Tito Mboweni will announce the decision shortly after 3pm on Thursday.
An upward cycle that saw rates rise five percentage points between June 2006 and June 2008 has eaten into household budgets, and CPIX (consumer inflation less mortgage costs) inflation, which hit 13,6% year-on-year in August, should now be close to peaking, making a hike unlikely.
Government bond yields have fallen sharply over the past few days, partly as investors seek out safer options amid risk aversion sparked by market upheaval, but also on speculation that a rate cut may be in the offing following global moves to ease tight credit conditions.
The central bank may not want South Africa to be out of synch with moves in other economies. Weak manufacturing data for August, released on Wednesday, also highlighted the impact of past increases.
However, analysts said South Africa did not suffer the same banking difficulties that the United States and Europe faced, and did not necessarily need the same remedies.
”Other economies are cutting [rates] because they have a massive liquidity problem. That is very different to the environment here,” Jeff Gable, Absa Capital’s head of research, said.
”I think we can all agree that there is no reason to worry about our banks, so why direct monetary policy to that.”
Mboweni has warned over the past month about continued risks to inflation, and the central bank has, so far, not signalled concern about liquidity issues.
The rand currency has also depreciated about 15% against the dollar since the last policy meeting two months ago, adding to pressure on imported inflation. Analysts expect the weaker trend to continue. —