No rate change, predict economists

2012-05-21 11:00

Johannesburg - The SA Reserve Bank (Sarb) is expected to keep its main policy rate unchanged for the ninth meeting in a row next week, hoping the economy will start to show some signs of oomph before it hikes the rate to curb high inflation next year.

All 31 economists in a Reuters poll this week forecast that the repo - the rate at which the Sarb lends to commercial banks - will stay at 5.5% when the monetary policy committee (MPC) concludes three days of meetings on May 24.

"We forecast inflation to be benign enough to allow the Sarb scope to delay the rate-hiking cycle, in the context of a lingering output gap and the fragility of the global economy," said Renaissance Capital economist Elna Moolman.

Even though inflation breached the top end of its 3-6% target band this year, the Sarb has left interest rates unchanged for 17 months at an over 30-year low, hoping economic growth will pick up pace after a 2009 recession.

Governor Gill Marcus said last week the monetary policy stance was accommodative because of the persistence of the negative output gap - the difference between the economy's growth potential and its actual output. 

However, with inflation at the upper end of the target range, there was "limited, if any, room for further monetary accommodation at this stage", she said.

Headline consumer inflation eased to 6% in March from 6.3% at the start of the year, after an initial breach of the target in November.

The bank expects gross domestic product growth of 3% for this year. Preliminary numbers showed 2011 growth at 3.1%.

"Sluggish growth remains the key concern. Eurozone problems threaten this further while the resulting financial market turmoil may see a weaker exchange rate and hence more inflation pressure," said Luke Doig, economist at Credit Guarantee Insurance.

The rand has lost nearly 8% since the MPC's last meeting at the end of March.

Of the 31 economists surveyed by Reuters, six think there may be room to raise the benchmark rate by 50 basis points before the year is over, while two think inflation may ease enough to allow for a cut before year-end.

The others see rates on hold for the rest of the year.