Economists divided over SARB’s rate decision

Economists are split on their predictions for the upcoming Monetary Policy Committee (MPC) decision by the South African Reserve Bank (SARB). Some analysts suggest that the current interest rate is at its bottom and there is no need for further cuts, while others anticipate a 25 basis point reduction, which would mark the lowest interest rate point in decades. Sanisha Packirisamy, Economist at Momentum Investments, shared insights in a recent interview with CNBC Africa on the diverse expectations surrounding the SARB's upcoming decision. The market is closely divided, with 13 out of 26 surveyed analysts anticipating a 25 basis point cut, 13 foreseeing no change, and two predicting a 50 basis point reduction. This disparity mirrors the discord observed during the May 2020 MPC meeting, signaling potential ongoing disagreement among committee members. Packirisamy expressed Momentum Investments' viewpoint of a 25 basis point cut, highlighting the prevailing weak economic growth and benign inflation as justifications for a further easing of monetary policy. However, she acknowledged the risks associated with maintaining negative real interest rates over an extended period. Consequently, Packirisamy emphasized the importance of monitoring inflation dynamics to prevent adverse effects on financial stability. While Momentum Investments anticipates an additional 25 basis point cut post the upcoming meeting, Packirisamy emphasized that the path to further rate cuts may become more cautious, with the SARB potentially transitioning to a more data-dependent approach. Addressing the uncertainty around the timing of interest rate adjustments, Packirisamy noted that the global trend of lower rates for a prolonged duration may differ in South Africa due to concerns over medium-term inflation trajectories. In contrast to developed markets, where sustained low rates are envisaged, South Africa might witness an earlier monetary policy tightening, with a potential interest rate hike projected in the first half of the next year. Shifting the discussion to state-owned enterprises, Packirisamy commented on the ambiguity surrounding South African Airways' (SAA) funding commitments, following recent statements by government officials. The uncertainty regarding the funding sources for SAA raises concerns about the state's approach to financing state-owned entities. Packirisamy highlighted Minister Tito Mboweni's stance on conditional state transfers to avoid indiscriminate financial support for state-owned enterprises. The lack of clarity on funding origins for SAA underscores the need for transparent and sustainable financing models for the troubled entity. With investors closely monitoring the developments, the future funding decisions for SAA will serve as a crucial indicator of the government's commitment to fiscal responsibility and accountability. Overall, the upcoming SARB rate decision and the funding uncertainties surrounding SAA underscore the challenges facing South Africa's economic recovery and financial stability.