South African’s central bank will keep rates unchanged next week
Economic risks mount before December’s leadership conference for the ruling ANC.
26 out of the 28 economists surveyed said rates would stay at 6.75%. The other two said they expected a 25-basis-point cut.
Last month’s poll suggested rates could be cut to 6.50% in January 2018 or March 2018, then remain there for the rest of the year. The new poll suggests that there will be no cut until 2019.
“It is really because we feel we need to get a sense of where South African politics is going next year,” said Kevin Lings, economist at Stanlib in Johannesburg, who predicted no change.
The ANC has to now pick a successor to president Jacob Zuma to lead it into 2019 national elections.
July surveys suggests that the Reserve Bank was in a cutting cycle but that was tempered with by the worries about potential sovereign credit ratings cuts after a dire October medium-term budget review.
If either cut their ‘local debt’ ratings, the government’s $125 billion stock of rand-denominated debt will no longer be eligible for the world’s big global bond indexes. That would definitely trigger widespread selling and increase pressure on the government by increasing its borrowing costs.
Inflation is expected to slow down slightly next year to an average of 5.2% from an estimate of 5.3% for this year. Governor Lesetja Kganyago, said his central bank would like to see lower inflation rates of 4.5%, compared to 5.1% now. Kganyago said the volatile rand was the biggest risk to inflation forecasts.
The rand has been keeping a steady path of around 14.00 per dollar over the next 12 months, however, weaker investor sentiment means it is currently at 14.40/$.
Economic growth in South Africa is expected at 1.2% in 2018, up from a median of estimates for 0.7% in 2017.