SARB interest rate decision this week: what to expect

Cape Town - There is a fair amount of data out this week, according to FNB's chief economist Mamello Matikinca.

The most important market event of the week will be the first interest rate decision of the new year of the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB). It takes place on Thursday.

According to Matikinca, FNB's view is that the MPC meeting is unlikely to deliver any surprises.

FNB expects the MPC meeting to see "a more balanced tone with a slight bias toward upside inflationary risks". It expects rates to remain unchanged.

"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.

"Firstly, the oil price has surged, presenting upside risk to the inflation profile. Secondly, the February budget could deliver significant tax hikes and expenditure cuts in an effort to fund free higher education and provide fiscal support for ailing state-owned enterprises (SOEs), all of which need to be budget neutral."

She pointed out that ratings agency Moody’s is also due to announce its latest decision on SA's sovereign credit rating, which is on review for downgrade.

"Should the budget disappoint, a downgrade would see significant portfolio outflows, greater difficulty in funding the current account deficit, a weaker currency and inflationary concerns," said Matikinca.

FNB expects the MPC to highlight the risk of a wage price spiral should the public sector wage negotiations not conclude more or less in line with inflation.

Other releases

November mining production will be released on Tuesday, while November retail trade sales are out on Wednesday.

Civil cases for debt, motor and wholesale trade and building statistics - all for November - are scheduled for Thursday.

The SA Reserve Bank’s (SARB) Monetary Policy Committee (MPC) will also hold their first meeting of 2018 this week.

"Despite global appetite for iron ore and coal remaining robust, and a very low November 2016 base, we expect a slight moderation in mining output relative to October ’s very strong 5.2% year/year," Matikinca said.

As for retail sales, she said these are likely to show very strong growth for November, given Black Friday sales. This will add to the strong growth the sector has shown for the fourth quarter so far.

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