Interest rates are expected to remain unchanged given depressed business and consumer confidence. Picture: Simphiwe Mbokazi

Johannesburg - The monetary policy committee (MPC) of the Reserve Bank is expected to keep the repo rate unchanged at 6 percent in its interest rate decision tomorrow, in line with market expectations.

However, the tone of the MPC statement is expected to be sufficiently hawkish to justify a hike in November, should the rand really fall out of bed.

“Still, we believe the rand would have to depreciate past its current trading ranges to incur a November hike. Much can still go wrong, but such stark currency depreciation is not our base case,” said Walter de Wet and Shireen Darmalingham, analysts at Standard Bank Research.

The rate decision has been brought forward to tomorrow due to a public holiday on Thursday.

First National Bank economists Alex Smith and Mamello Matikinca said keeping the repo rate at 6 percent would be a close call as recent rand weakness might be sufficient justification for a further interest rate hike.


However, they thought the Reserve Bank would have to cut both its inflation and gross domestic product (GDP) growth forecasts for 2015 and 2016 and as a result it might be difficult to justify an interest rate increase.

Carmen Nel and Ilke van Zyl, analysts at Rand Merchant Bank, said: “It will once again be a growth against currency duel. Whereas the latter usually wins, we think the Reserve Bank will turn warier – as in 2008 – of global prospects because the US Federal Reserve, who have been communicating intent to hike for a long time, have decided to back away from it.”

Annabel Bishop, the chief economist at Investec in South Africa, said the Reserve Bank was expected to leave interest rates unchanged, given the contraction in the GDP in the second half, weak economic growth prospects, with business and consumer confidence depressed, low growth in credit extended to households and higher taxes tightening fiscal policy.

“Due to marked moderation in the economic growth outlook, it would serve South Africa best to cut interest rates. However, flat interest rates in the remainder of this year and most of next is the best to be hoped for.”

Inflation is expected to average 4.8 percent this year, 5.9 percent next year and 5.8 percent in 2017.

Consumer inflation tomorrow is forecast to moderate to 4.7 percent in August from 5 percent in July, as the price of petrol dropped by 51c per litre on the back of the fall in the oil price.


Bishop said the inflation peak next year would be driven by exogenous factors, as was the rise in inflation expectations, and so a rate hike would not either materially reduce inflation nor change inflation expectations materially.

She said global monetary policy accommodation was widespread, with South Africa and Brazil going against the grain, as Brazil’s recession deepened and its credit rating was downgraded.