WEEK AHEAD: SARB could cut rates imminently

Jul 17 2017 18:08

Cape Town - Although it would be possible for the SA Reserve Bank (SARB) to cut interest rates imminently, it is reasonable to expect the SARB Monetary Policy Committee (MPC) to be more prudent in its views, international market research company Citi Velocity said on Monday.

This is by Citi Velocity's forecasts – both of gross domestic product (GDP) and the Consumer Price Index (CPI).

The MPC will announce its latest rates decision on Thursday and Citi Velocity thinks it will likely keep the repo rate unchanged at 7% for most, if not all, of 2017.

"It is reasonable to expect the SARB MPC to be more prudent in its views given the simple fact that its credibility is now a lone ‘strength’ in the assessment of SA’s economic policies - at least, in our opinion and in line with the view from the rating agencies," it said in its notice called a week ahead in review.

READ: SARB isn't crippling growth in SA - economist

"We have stated for some time that the variables required to justify the first rate cut must be overwhelming to ensure that a cutting cycle is possible. The recent turn in emerging markets (EM) flows and uptick in political pressure on the SARB leave us convinced that July is not the ideal time."     

Citi Velocity expects a more dovish MPC statement on Thursday than that of May when only one MPC member voted for a rate cut.

"It is unclear how many MPC members may vote for a rate cut in July, however, we believe the SARB has signaled that there is due consideration within the MPC for a cutting cycle," Citi Velocity said. "But that doesn’t mean right now."


The latest CPI data is expected on Wednesday and Citi Velocity forecasts a slowdown to 5.1% year-on-year (y/y) in June headline CPI from 5.4% y/y previously.

Its 0.2% month-on-month (m/m) forecast is driven up by the quarterly survey in housing and utilities.

"CPI food will only provide marginal offset as we only expect a slight slowdown to around 6.9% y/y from 7.0% y/y previously. This is despite our forecast for monthly food deflation as there is a low base from a year ago," it said.

"We expect deflation in bread and cereals to continue, but largely countered by meat inflation given a still-high rate of cattle slaughtering taking place."

Furthermore, it says the about 25c/litre petrol price cut will also alleviate price pressure in CPI transport. However, a bigger downturn should hit the July print following a larger 69c/litre cut.

Core inflation is forecast to turn lower, to 4.7% y/y from 4.8% y/y previously.

"The extraordinary weakness being measured in household demand as per the national accounts data is having a noteworthy impact on core inflation in our opinion. We expect both headline CPI and core CPI to surprise the SARB and the consensus to the downside through 2018," said Citi Velocity.

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sarb  |  mpc  |  interest rates  |  sa economy



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