Johannesburg - The Reserve Bank will probably keep its repo
rate at current three-decade lows next week to give the struggling economy
more leeway, although higher electricity and fuel costs could force it to start
tightening policy later in the year.
All 24 economists polled by Reuters expect the Reserve
Bank’s monetary policy committee to keep the repo rate at which it lends to
commercial banks unchanged at 5.5 % next Thursday, with 12 seeing no change
throughout 2012.
The majority view is that the next move for rates will be
up, with 10 analysts expecting 50 basis points to be tacked on before the end
of this year.
Only one economist sees another cut to 5.0% in the repo
during the third quarter, adding to 6.5 percentage points of reductions in the
two years to November 2010.
Government bonds sold off aggressively when unusually
hawkish comments on inflation from Reserve Bank governor Gill Marcus last week
led some market players to price in the stronger likelihood of higher rates by
year-end.
But data on Thursday showed targeted consumer inflation
slowed unexpectedly to 6.1% in February, suggesting it might ease back into
the Reserve Bank’s mandated 3%-6% target band earlier than expected.
It has been above the band since November last year.
“As we have been arguing for long, economic activity is
sluggish, cost side pressures are waning and inflation should fall back into
the target band earlier than expected,” said HSBC in a note.
“This backdrop supports an accommodative stance on monetary
policy.”
February’s inflation slowdown might however be a temporary
reprieve amid evidence that consumer spending, which has remained hesitant since a
recession in 2009 slashed about a million jobs, is slowly gathering pace in
response to lower borrowing costs.
On March 15 Marcus said recent data seemed to suggest
inflation was becoming more generalised, possibly reflecting the emergence of
demand pressures, and that the bank would monitor this trend “very carefully”.
The central bank had previously said inflation was mostly
cost-push driven, partly justifying its stance of leaving the repo rate at a
30-year low over the past 16 months.
Price pressures also loom from fuel price increases, while
power utility Eskom has been allowed to raise tariffs by 16% for the
2012/13 financial year starting in April, although this is less than the initially
approved hike of 25.9%.
“It is becoming increasingly likely that a 50 basis-point hike before the end of the year will transpire, potentially in November if not before,” said Investec economist Annabel Bishop.