July 12, 2018 / 6:59 AM / 4 months ago

South Africa's Reserve Bank to talk tough, but hold steady - poll

JOHANNESBURG (Reuters) - South Africa’s Reserve Bank will probably talk tough on taming rising consumer prices but choose to leave the repo rate unchanged next week to give the economy a chance to grow, a Reuters poll found on Thursday.

South African Reserve Bank governor Lesetja Kganyago listens during a briefing at Parliament in Cape Town, South Africa, August 1, 2017. REUTERS/Mike Hutchings/File Photo

All 25 economists surveyed in the past week said the Reserve Bank would keep rates unchanged at 6.50 percent on July 19. The bank last cut rates in March, by 25 basis points, when inflation was moderating.

“The monetary policy rhetoric is likely to be quite hawkish at the upcoming committee meeting, but we don’t expect any interest rate hike yet,” said Elna Moolman, economist at Standard Bank in Johannesburg.

Inflation quickened 0.7 percentage points to 4.5 percent in April due to a new value added tax and fuel cost hikes, but dipped to 4.4 percent the following month, and May could have marked the end of an easing cycle by the South African Reserve Bank (SARB).

There is just 10 percent probability the central bank will change rates at this meeting, the poll showed, and only two economists surveyed expect any movement this year. Medians suggest no movement until 2020 at least.

Markets cheered Cyril Ramaphosa’s new presidency at the turn of the year, sending the rand around 10 percent stronger, but the currency has lost all those gains in the past six months due to global trade worries and a poor local economic performance in the first quarter.

However, a separate survey last week said the currency was likely to cruise through the next 12 months but the outcome of a trade war between the United States and China could blow it off course. [ZAR/POLL]

On Friday, the United States and China exchanged the first salvos in what could become a protracted trade war, slapping tariffs on $34 billion worth of each others’ goods and giving no sign of willingness to start talks aimed at reaching a truce.

Inflation is expected to average 4.9 percent this year and 5.2 percent next.

Moolman said the SARB would wait for more certainty about the trade war’s lasting impact on currency and growth, as well as general growth strength and inflation pass-through from higher oil prices and rand weakness, before it responds.

“A still cool economy calls for cool heads on the committee, where we deem it unlikely at this juncture that rate hikes will be considered anytime soon,” said Jeffrey Schultz, economist at BNP Paribas in Johannesburg.

Economists have steadily trimmed their 2018 growth forecasts from a median of 1.9 percent in April and this month predicted a 1.5 percent expansion, 0.2 percentage points lower than thought last month. It will accelerate to 2.0 percent next year.

Additional polling by Khushboo Mittal

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