SA expected to cut interest rates to 6.50%

SA expected to cut interest rates to 6.50%
Published: 14 September 2017
South Africa's central bank is expected to cut its benchmark interest rate by another 25 basis points next week, taking it to 6,50 percent, as inflation is considered likely to moderate, a Reuters poll found on Wednesday.

In a survey taken in the past week, 17 of 26 economists said the Reserve Bank will cut its repo rate 25 basis points. One said it would cut 50 basis points and eight said the bank will leave it unchanged.

Last month, the median forecast suggested the bank would wait until November before trimming borrowing costs and economists gave a median 50 percent chance of a September cut. But that likelihood rose to 55 percent in the latest poll.

"September is expected to see a further easing in interest rates, as consumer inflation, and hence inflation expectations, moderate further," said Annabel Bishop, chief economist at Investec.

Africa's major central banks have entered an easing cycle to stimulate growth after months of drought, austerity drives and confidence issues across the continent, taking advantage of slower hikes from the Federal Reserve in United States.

At its last meeting, in July, the Bank unexpectedly lowered its repo rate by 25 basis points to 6,75 percent, its first cut in five years, as slower inflation gave it room to support a sickly economy.

Inflation is expected to average just 5.3 percent this year and 5,1 percent next, lower than last month's medians.

"The Monetary Policy Committee has taken the opportunity lately of pushing through a small interest rate cut, and South Africa has likely entered a shallow interest-rate-cutting cycle," Bishop said.

The survey also forecast that the Bank would make a further cut of 25 basis points in either January or March.

Growth is expected at 0,7 percent this year, 0.1 percentage point better than last month's median but next year's forecast was unchanged at 1,2 percent. The economy grew 0,3 percent last year.

South Africa emerged from recession in the second quarter as agriculture helped the economy expand more than expected, growing 2,5 percent in the three months to the end of June after contracting in the previous two quarters.

Still, the rand remains a wild card for the Bank. A separate survey last month forecast it would be 7 percent weaker in a year on expectations credit agencies would cut the local currency debt rating to "junk" status, ejecting it from crucial bond indexes.

- Reuters
Tags: Interest,


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