Johannesburg - South Africa's debt
downgrade to junk status and the finance minister's recent
dismissal mean interest rates will be on hold until 2020 at
least, a Reuters poll found on Wednesday.
Economists in the poll, taken just a week after Fitch
Ratings Agency and Standard & Poor's downgraded South Africa to
"junk", pushed out rate cuts, ruled them out altogether or
considered the possibility of hikes.
But the medians from the poll suggest rates will be on hold
at 7.0 percent until at least 2020, the end of the forecast
horizon. In last month's poll a 25 basis point cut was expected
early next year.
The South African Reserve Bank (SARB) left rates unchanged
last month, saying the rand had re-emerged as a risk to
inflation following an increase in domestic political
uncertainty.
Christie Viljoen, economist at KPMG, said she did not think
the SARB would tighten monetary policy.
Read also: Interest rate hike nudges closer
"Rather, a likely upward adjustment in their inflation
expectations will result in a delay in the eventual downward
movement in lending rates," he said.
The ratings downgrades followed a cabinet reshuffle at the
end of March in which Pravin Gordhan was fired as finance
minister. The Reserve Bank warned on Monday that the
developments could put pressure on the rand and accelerate
inflation.
A Reuters poll last week suggested the rand will be
relatively stable against the dollar for the rest of this year
as the impact of Gordhan's shock dismissal and credit rating
cuts were already priced in.
Inflation outlook
Inflation, which slowed to 6.3 percent in February, is
expected to be within the Reserve Bank's 3-6 percent comfort
zone at 5.8 percent this year and then dip to 5.5 percent next
year, unchanged from last month's projections.
The Reserve Bank also said on Tuesday it was too early to
tell whether the downgrades would push the economy into a
recession.
Only one of the 27 economists polled predicted more than one
quarter of contraction, and the economy is expected to grow 1.0
percent this year and 1.5 percent next. Last month's forecasts
were 1.1 percent and 1.7 percent respectively.
John Ashbourne at Capital Economics said it was certainly
true that President Jacob Zuma's cabinet reshuffle had prompted
a lot of negative headlines. "But it's far from clear that the
recent scandal will have a lasting economic effect."
South Africa has been supported by a current account deficit
that narrowed to a near six-year low of 1.7 percent of GDP in
the last quarter of 2016, prompting some economists to keep
their expectations for rate cuts later this year.