Rates: Eskom hikes a concern

Johannesburg - South Africa's central bank will likely keep interest rates steady at the end of a two-day meeting that started on Wednesday, the last chaired by central bank head Tito Mboweni.

Mboweni leaves the bank next month after a decade as governor and a year in which the policy committee has cut rates sharply to try to spur the economy out of recession.

Twenty-five of 30 economists polled by Reuters last week predicted the repo rate to remain at 7%, with one of those forecasting a cut subsequently moving to the no-change camp.

Concern about expected big increases in electricity prices may weigh on the 7-member committee, particularly given it will not have seen any new inflation data showing easing pressures since the last meeting, when it also left rates flat.

Mboweni last week also said the monetary accommodation offered already - 5 percentage points in relief since December - should be enough to return Africa's biggest economy to growth.

Consumer inflation remains above the 3% to 6% band - 6.4% year-on-year in August - and the monetary policy committee (MPC) said after the September meeting that risks were balanced.

"We cannot completely exclude the possibility of the MPC cutting at this week's meeting but without the September CPI data at hand, such a move would seem out of place," Alvise Marino, emerging markets analyst at IDEAglobal said.

A few analysts are still holding out for another cut to help revitalise households under severe financial strain.

While analysts and the central bank see a recovery in the economy later this year, retail sales continue to decline and the manufacturing sector is still deep in trouble, partly due to a relatively strong rand currency that Mboweni has repeatedly warned about.

The decision, to be announced from 15:00 on Thursday, will signal the end of an era for the central bank, with Mboweni bowing out in November as Governor and head of the policy committee he set up to make rate movements more transparent.

Having been criticised by some analysts and traders this year for surprising decisions, he may want to steer away from going against market thinking again. The committee is also unlikely to be moved by union demands for more rate cuts.

Gill Marcus, a former deputy governor and the previous head of commercial bank Absa, will take over as governor from November 9, ahead of the November policy meeting.

- Reuters