Sarb might surprise again with rate decision

Cape Town - The Monetary Policy Committee (MPC) of the SA Reserve Bank (Sarb) is likely to decide at its meeting this week to keep interest rates the same.

This is the opinion of economist Mike Schüssler of Economists dotcoza.

"I predict no change this week. I think interest rates will stay here for most of the year, with a chance of a small increase if inflation does not drop as much as expected," he told Fin24 on Monday.

Sarb governor Lesetja Kganyago will announce the first MPC interest rate decision for the year on Tuesday afternoon January 24.

Sanisha Packirisamy, economist at MMI Investments and Savings, also does not expect the MPC to make any move on rates on this time. This is her view despite a marginally higher than expected consumer inflation print for December.

"The Sarb is likely to maintain a cautious tone given elevated political uncertainty - particularly globally regarding the unknown timing and extent of fiscal stimulus in the US)," Packirisamy told Fin24.

Other factors playing a role she mentioned include the sustainability of capital inflows in SA - 2016 saw higher foreign equity outflows than 2008 - and stubbornly high domestic inflation expectations.

READ: Why SA won't see interest rate cuts soon

Last week Fin24 reported that emerging markets economist Peter Attard Montalto of Nomura also said he expects the MPC to keep rates unchanged this time. He told Fin24 on Monday that he has not changed his view since then.

He described the timing of the latest MPC meeting - a few days after the US presidential inauguration - as providing the MPC with "enough to stick to the ‘fear’ narrative and be hawkish".

Montalto pointed out that some in the market sees the stability of the rand as a reason to cut rates soon.
 
"This is where we expect a mild surprise for the market and the tone will likely be solidly on the hawkish side of neutral," said Montalto.

"This would be a second surprise to the market after the November MPC meeting - where rates were kept unchanged - also surprised the market in how hawkish it was."

He thinks Sarb views the rand's short-run stability as temporary and as there being the risk of weakness in the medium run.

"We think a new factor to add will be the upside to oil prices and taxes in the February budget. Oversimplifying, but broadly the median of the committee puts more weight on those worrying risks than on the more positive risks," said Montalto.

"In our view, this is what prevents cuts and means the rhetoric of the statement will still talk about vigilance and that it can act - that is implying hikes - on deterioration in the CPI inflation forecast at the longer end especially."

In his view, conditions will not exist to cut rates in the next two years.