Economists expect Reserve Bank to keep repo rate unchanged

There’s much anticipation surrounding this afternoon’s monetary policy announcement, with analysts in consensus that there is unlikely to be any changes to borrowing costs. The rand has shown slight strength this morning ahead of the interest rate announcement, which may be seen as a positive sign. Joining CNBC Africa to discuss further are Miyelani Maluleke, Economist at Absa Corporate and Investment Banking, and Siphamandla Mkhwanazi, Economist at FNB. Maluleke noted that there is a consensus among analysts that rates will be held steady this afternoon, with data from polls of analysts over the last week indicating this sentiment. However, he highlighted that the forward rate markets are pricing in a 30% chance of a 25 basis point hike, suggesting a divergence in market sentiment. Mkhwanazi echoed this sentiment, emphasizing that current economic indicators support the view that there is no immediate pressure on the Reserve Bank to adjust interest rates. With inflation within target range, labor market slack, and negative credit extension indicating stability, the case for a rate hike at present seems unlikely. The analysts further delved into the factors that could be driving market expectations, such as global inflation trends and signals from the SARB's own models. Maluleke mentioned the potential impact of inflationary pressures globally and signals from the MPC meetings, while acknowledging that the recent events, such as the third wave of COVID-19 and recent civil unrest, might give the committee reason to exercise caution. Mkhwanazi indicated that recent events like the civil unrest in South Africa could influence the MPC's tone, potentially leading to a more cautious outlook and a revision of growth projections. The uncertainty surrounding the impact of recent events on job losses, wage growth, and investment sentiment could weigh on the committee's decision-making process. The discussion also touched on the topic of the proposed basic income grant, with Maluleke highlighting the socio-economic challenges facing South Africa and the need for policy measures to address these issues. However, he noted the tight fiscal constraints and the importance of ensuring sustainability within the current fiscal framework. Overall, the analysts agreed that while there may be divergent views in the market, the prevailing sentiment is that the Reserve Bank is likely to maintain the repo rate unchanged in this announcement. The uncertainties stemming from recent events and the need for a cautious approach in the face of ongoing challenges may influence the tone of the SARB's communication this afternoon.