Close call expected at Reserve Bank's repo rate announcement on Thursday

As the SA Reserve Bank readies to announce its repo rate decision on Thursday afternoon, analysts are still divided on whether the central bank will raise the rate or keep it unchanged at 6.5%.  

Reserve Bank governor Lesetja Kganyago will announce the monetary policy committee’s rate decision at a media conference in Pretoria starting at 15:00.

Kganyago will also talk about the state of South Africa’s economy, and give the bank’s latest GDP estimates.

The repo rate is the benchmark interest rate at which the central bank lends money to other banks. Changes in the repo rate affect the prime lending rate, which is the rate banks use as a starting point to calculate interest rates for their clients. 

The International Monetary Fund earlier in the week urged the central bank to keep inflation at its mid-point target goal of 4.5% to preserve price stability and central bank credibility. On Wednesday, Stats SA announced that annual consumer price inflation for October had come in at 5.1%.

As Bloomberg reported on Wednesday, 11 of the 21 economists in its latest survey predicted an increase of 25 basis points to 6.75% on Thursday. The rest said the rates would be kept unchanged.

Maura Feddersen, an economist at PwC Strategy&, said Thursday’s decision would likely be a close call.  

"The decision whether to embark on a hiking cycle in November, or delay to 2019, will likely be contentious among MPC members, with a unanimous decision unlikely," she said. "However, with the price of Brent crude oil futures retreating 18% since the September MPC meeting, the rand strengthening over 2% against the US dollar, and a more dovish tone from US monetary policy makers, the SARB may once again delay the start of its tightening cycle.

"Nonetheless, the SARB’s scope to keep interest rates on hold is quickly diminishing, especially in the face of growing emerging markets volatility."

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