Johannesburg - The Reserve Bank is likely to keep
interest rates at 30-year lows at next week’s policy meeting as economic growth
remains below potential, while inflation is expected to stay on target over the
next couple of years.
Of the 23 economists polled by Reuters this week, 21
expected the South African Reserve Bank's (Sarb's) monetary policy committee to keep the repo rate at which it
lends to commercial banks at 5.5% next Thursday, with only two seeing a 50
Sarb has kept rates at
three-decade lows since late 2010, but some analysts believe further stimulus is
needed as a global downturn hurts exports while inflation is anchored within a
3%-6% target range.
The consumer price index (CPI) is likely to have slowed further to 5.6% year-on-year in
June, continuing the previous month’s downward trend, a separate survey showed
At its previous meeting in May, the central bank said
inflation had likely peaked in the first quarter of this year, and should
remain with the target band until the end of 2014.
Economic growth remained below potential, it said, cutting
its forecast for this year to 2.9% in 2012 compared to previous expectations of
3%, although this is still above the Treasury’s forecast of 2.7%.
"The likelihood of further easing depends mostly on the
Sarb’s assessment of the growth outlook and risks," said Renaissance Capital
economist Elna Moolman.
"The money market is pricing in rate cuts before the end of
the year - it seems to expect this at the September meeting rather than the
July one - but this is not (yet) the consensus among economists."
South African government bonds have rallied sharply in
recent weeks, with benchmark yields pushing to historic lows as the debt market
sees a 50/50 chance of rates coming down in September or November, the last two
policy meetings for the year.
In the poll, seven economists said a 50 basis-point cut was
in the offing before year-end to spur growth, but 16 saw the bank maintaining
its cautious "no change" stance for the rest of the year.
The next move in rates, most probably a 50 basis-point increase, is likely to come towards the end of 2013 or early in 2014 when
inflation should start trending higher.
The Reserve Bank warned in its annual report last week that
the main upside risk to inflation lay in the depreciation of the rand,
which hit a three-year low of R8.71 against the dollar last month and remains
vulnerable to risk aversion over the eurozone debt crisis.
“Given that eurozone heads have yet to offer a long-term
credible solution to the crisis, our rand forecast is for a longer period of
volatility and extended weakness on the 12-month horizon, and such a scenario
would indeed pose a risk to inflation,” said Anisha Arora, emerging market
analyst at 4CAST.