CAPE TOWN – The SA Reserve Bank (Sarb) Monetary Policy Committee (MPC) will meet on Wednesday and Thursday to consider the current stance of monetary policy.
The central bank, according to NKC Research, will have to weigh the potential negative impact of recent rand weakness and higher fuel prices on the inflation forecast against the potential negative impact of an interest rate hike on an economy already stuck in recession.
NKC analyst Elize Kruger said the chance of an unchanged monetary policy stance for this meeting was good – 60 percent probability, especially given the fresh news of recession, but the case is definitely building for the Reserve Bank to hike interest rates.
“Looking at the future trend in headline inflation, a possible multi-quarter breach of the 6 percent target level in 2019 and depending on the extent to which the secondary impact filters through to the rest of the basket.
“If they want to be pre-emptive, they would be able to justify a hike already at this meeting, but we doubt that the Sarb would take such an “aggressive” strategy in an economy deeply distressed.
NKC said on the extent of the rand’s depreciation could not be ignored.
The rand has weakened by about 10 percent since the last MPC meeting in July and NKC said this was not only against the dollar but also on a nominal effective basis.