Rates seen steady as Marcus takes helm

The South African Reserve Bank (SARB) will likely keep rates unchanged at the end of a two-day meeting that started on Monday, the first to be chaired by new Governor Gill Marcus.

Marcus assumed the position at the SARB on November 9.

The SARB has since December cut interest rates by five percentage points to stimulate an economy in its first recession since 1992.

Twenty-four of 28 economists polled by Reuters last week saw the central bank leaving the repo rate flat at 7%, with four forecasting a 50 basis point cut. All but two said there would be no more rate cuts after next week.

The SARB’s rates meeting comes after the African National Congress and its allies agreed over the weekend to look into broadening the mandate of the Reserve Bank and set up a task team to study the impact of the strong rand currency, which has gained more than 20% against the dollar so far this year.

Communist and labour allies of the ruling party want the central bank’s mandate of targeting inflation between 3%and 6% abandoned. They say strict adherence to it has hurt the poor through high interest rates.

Talk of reviewing the mandate is, however, not expected to persuade the bank to cut rates, given signs that the economy has bottomed out and worries that an expected big rise in power costs will stoke inflation.

State-owned electricity company Eskom will submit a revised request to the national energy regulator after strong criticism of its initial plan to raise tariffs by 45% over the next three years.

“In our view, [these factors] leave the SARB with little room to ease monetary policy much further—regardless of who is at the helm,” said Absa Capital in a note.

Absa Capital also said the Reserve Bank’s mandate was unlikely to change in the medium term because the government had little room for manoeuvre, due to the inflation outlook and the potential cost of currency intervention.

As Marcus faces the public for the first time as governor, investors will scrutinise her comments to gauge her views on monetary policy and whether she, like her predecessor Tito Mboweni, strongly advocates inflation targeting.

Alvise Marino, emerging markets analyst at IDEAglobal, said focus on policy continuity and consistency would overshadow any concerns about weak demand indicators such as retail sales and credit growth.

Marcus will announce the bank’s decision from about 3pm on Tuesday.
It may also make an announcement whether to hold its December policy meeting after saying two weeks ago it was reviewing it.—Reuters

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