South Africa’s Reserve Bank to Wait Until May for Next Rate Hike

JOHANNESBURG – The South African Reserve Bank will not raise interest rates again until May, according to a Reuters poll, taken after the Reserve Bank surprised many economists last month by adding 25 basis points to borrowing costs.

The median forecast in the poll of 25 economists, conducted over the past week, suggests the central bank will wait until May before hiking interest rates by another 25 basis points, taking its key rate to 7.00 percent.

The Reserve Bank increased its benchmark lending rate for the first time in nearly three years last month, saying the risk of higher inflation in the longer-term remained elevated and that it could not risk waiting until later to take action.

“Risks to the inflation outlook remain to the upside, on possible rand depreciation and above inflationary increases in administered prices, particularly electricity tariffs,” Investec economist Kamilla Kaplan wrote in a note.

She pointed out that debt-troubled state-run utility Eskom proposes to increase electricity tariffs by 15 percent a year for the next three years.

The poll predicted inflation would quicken to 5.3 percent next year from 4.7 percent in 2018.

A separate poll last week suggested the rand will erase around a third of the 10 percent gains it made in the past two months in the run-up to elections next May as strong volatility rattles the currency, adding to inflationary pressures.

However, the Reserve Bank reacts more strongly to any signs of second round effects on its inflation outlook rather than to currency weakness.

Another poll showed analysts are increasingly pessimistic about the prospect of an oil price rally next year, even though markets expect OPEC to cut output.

Brent crude eventually affects local inflation, from factories through to consumers.

South Africa’s Reserve Bank tries to keep inflation in the middle of its 3-6 percent target range.

The South African economy is expected to expand to 1.5 percent next year from 0.7 percent this year. The economy expanded 2.2 percent in the third quarter, taking the country out of recession.

(Additional polling by Khushboo Mittal in Bengaluru; Editing by Alexandra Hudson)