The SA Reserve Bank is likely to keep the repo rate unchanged at 6.75% on Thursday, economists have suggested.
The central bank's monetary policy committee (MPC) started meeting on Tuesday to decide on the repo rate and the prime bank lending rate, which currently stands at 10.25%.
Governor of the SA Reserve bank Lesetja Kganyago will announce the benchmark rate call at a media briefing in Pretoria on Thursday afternoon.
In November 2018, the MPC introduced a 25-basis point hike to up the repo rate 6.75%. The committee kept rates on hold following its meeting in January 2019.
The repo rate is the 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.
Analysts from NKC Economics said in a market report on Monday that the SARB would likely keep rates unchanged on the back of a favourable outlook for inflation in 2018 and a moderate economic recovery expected for the year.
The latest consumer inflation data released by Stats SA came in at 4.1%, within the central bank's targeted range of between 3% and 6%.
Head of Rand Merchant Bank's Global Market's Research team, Nema Ramkhelawan-Bhana, said in note that the SARB would likely express a more dovish stance on Thursday. "The MPC might be more inclined to consider an interest rate cut if inflation expectations continue to respond to the committee’s persistent focus on the mid-point (4.5%) of the inflation target but that is a conversation for Thursday," she said.
Watch the tone
Peter Attard Montalto of Intellidex, on the other hand, said that while it is consensus that rates will remain unchanged, the event may represent "a likely flip-flop back towards a more hawkish stance" and will be closely watched for shifts in forecasts and tone.
John Loos, property sector strategist at FNB Commercial Property Finance, said that the bank's expected unchanged interest rate decision will be property market neutral. But other economy-related negatives will keep the market on the back foot. "An unchanged interest rate decision will likely keep the property market gradually 'correcting', that is with nominal property value growth rates at very low single digit rates that don't keep pace with 4% to 5% CPI inflation, thus declining in real terms," he said.
Sanisha Packirisamy, chief economist at Momentum Investments, said that regardless of whether rates are raised this week or not, South Africans should keep their spending and debt in check over the coming months.
"The SARB signalled its intention to drive inflation expectations closer to the midpoint of the 3% to 6% inflation target band and as such has not closed the door on further interest rate increases further down the line," she said. "So, whether or not interest rates remain unchanged this coming week, do your best to repay your current debt and avoid taking on unnecessary future debt to ensure you’re not further negatively impacted by any future interest rate hikes that may lie ahead."
The Moody's effect
Ratings agency Moody's is expected to make a decision on SA's sovereign credit rating on Friday.
The SARB would likely take a cautious policy stance on Thursday as it anticipated the potential impact of Moody's decision on the rand, Investec economist Kamilla Kaplan said in a report.
"It can be expected that alongside the rand, the above-inflation electricity tariff increase and higher international oil prices will be assessed as upside risks to the inflation outlook," she said.
Consumer inflation is expected to be contained at 4.7% in 2019.