Barometer: 57% chance of interest rate staying same

Cape Town - The SA Reserve Bank's Monetary Policy Committee (MPC) is likely to leave the repo rate the same when it meets later this week, according to indications from Nedbank Corporate and Investment Banking's Interest Rate Barometer.

The barometer considers the factors influencing the decision of the MPC’s last meeting on November 23, 2017 as well as developments since the last meeting, which could influence the MPC rate decision on January 18, 2018.

The factors relate to the global economy, domestic economy and major inflation drivers.

Of the 13 factors analysed for the latest barometer, seven support an unchanged outcome, one factor favours a hike and five factors support a cut.

On a weighted basis, this implies a 57% probability of a hold at this week’s MPC meeting, according to Nedbank CIB.

"Based on our analysis, we are of the opinion the repo rate will be left unchanged at 6.75% this week. We believe there are downside risks to the SARB’s inflation outlook - which could yield a revision to its inflation profile this week - while its growth forecasts are expected to remain unchanged," Nedbank CIB said in a statement.

"We believe that the SARB is likely to reiterate the vulnerability of the rand exchange rate due to event risks on the horizon. Nonetheless, a balanced outlook on monetary policy is expected, given the elimination of significant upside risks that the SARB had previously been concerned about."

Lastly, Nedbank CIB believes the rand and the local socio-political risk premium remain key swing factors, given their fluidity.

"Key event-risks in the form of geopolitical tensions, possible credit rating downgrades, local political headlines, combined with a Fed rate hike profile will also have a bearing on local monetary policy decisions in our opinion," the statement concludes.

Fin24 reported earlier that FNB's chief economist Mamello Matikinca agrees with the view that the MPC is likely to keep the repo rate the same this week.

"Despite inflation being well contained and a strengthening currency, we believe there are too many risks over the medium term to spur the committee to move in either direction," she said.

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