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Mixed expectations ahead of interest rates announcement – SABC News

blacksonrise by blacksonrise
January 21, 2021
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Mixed expectations ahead of interest rates announcement – SABC News
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Most economists say there have not been any significant changes in both growth and inflation outlook to warrant a change in interest rates.

They expect the Reserve Banks’ Monetary Policy Committee to keep the key repurchase rate at its current 3.5%, when it makes its announcement on Thursday.

However, a smaller number of economists anticipate a rate cut.

The bank has repeatedly cautioned against the over-reliance on monetary policy to stimulate growth.

Last year, it cut the repo rates by a cumulative 300 basis point in the face of a hard lockdown to deal with the first wave of COVID-19.

The Central Bank has reiterated that growth and employment can only be lifted by significant structural reforms.

The country currently is facing a fiscal and debt burden.  During its November MPC, the bank projected a smaller contraction for all of 2020 of 8% rather than the 8.2% estimate it gave in September.

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It also expected a massive third-quarter rebound.

Projections

Market analyst Patrick Mathidi expects the central bank to revise these projections.

“I think it will be interesting to hear what the outlook is given what’s been happening from the pandemic view.”

But other economists say the bank has a scope for another interest rate cut.

The rand’s recent strength and lower inflation outlook could support a case for further monetary easing.

That is with inflation now predicted to remain below the 4.5% midpoint of the central bank’s target range for the rest of the year.

The latest consumer price inflation numbers for December was the lowest in 16 years and the second lowest in 51 years.

Annual inflation declined to 3.1% in December from November’s reading of 3.2%.

The main contributors to the slowdown came from the food and non-alcoholic beverages category.

The expectations remain for rates to remain unchanged largely because there is not much inflation pressures.

Unchanged

Independent Economist Elize Kruger says the low inflationary environment offers incentives for the Reserve Bank to keep interest rates unchanged.

“The Reserve Bank’s Monetary Policy Committee will have its first meeting on Thursday. On the one side, we’ve seen a slight recovery in economic growth, which in the third quarter of 2020 came out higher than expected but on other side, we have seen inflation well under control. So, I believe that the Reserve Bank will for the first meeting be conservative and keep interest rates unchanged.”

Chief Economist at Efficient Group, Dawie Roodt says like most economists he expects the Reserve Bank to keep rates unchanged.

“I think that the Reserve Bank has really done enough now to support the economy as much as it can. In fact, I’m starting to get a little being worried about inflation over the next couple of months because there’s a possibility that it could start increasing. So for now, I think the Reserve Bank will most likely leave interest rates unchanged.”

The Monetary Policy Committee’s decision on rates will be delivered during a virtual press conference on Thursday at 3pm.- Additional reporting by Naledi Ngcobo.

File video: Senior Economist at Economics.co.za, Mike Schussler talks about, what an interest rate cut means to South African’s:

Credit: Source link

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