S’Africa to Keep Repo at 6.5%

South Africa’s Reserve Bank will keep interest rates unchanged on Thursday as it awaits a February budget and a ratings review by Moody’s due in the next few months, but will cut by 25 basis points in

May, a Reuters poll found on Friday.

All but three of the 24 economists surveyed over the past three days said the repo rate would be kept unchanged at 6.5 per cent on January 16. That would be the third meeting to leave policy unchanged since the bank cut rates in July by a quarter of a percent. 

Francesca Beausang at Continuum Economics said the Reserve Bank would avoid a rate cut in the first quarter ahead of the February budget which is expected to have significant implications for Moody’s decision on the country’s credit rating. 

The poll suggests the Reserve Bank will cut rates in May by 25 basis points to 6.25 per cent and then hold steady through next year. 

Beausang said one last cut in the second quarter was needed to give consumers a confidence boost and offset some of the short-term disruptions hit to growth from a disrupted electricity supply. 

“However, inflation should then accelerate and peak in Q3-2020 given farmers are expected to sow 2.8 per cent fewer hectares of maize than in the previous season and electricity tariffs are likely to increase,” she said. 

The survey medians suggested inflation was expected to average 4.8 per cent this year, 0.2 percentage points faster than in last month’s survey.