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After 300 basis points of cuts from SARB this year, a survey last week showed that 15 economists saw the repurchase rate maintained on Thursday, while 10 predicted a modest cut of 25 basis points to 3.25%.
However, the survey median shows that rates will decline in November for the last time in this cycle before the SARB begins raising rates to 3.50% in July or September.
“The SARB still has room for another rate cut of 25 basis points, but this will depend on the data,” wrote Luis Costa of Citi.
Costa warned that the space for further cuts is narrow due to the structure of public spending.
Stagflation – persistent high unemployment and inflation with weak or no economic growth – was a problem familiar to South African citizens and policy makers before disinflation took hold in the past two years.
Inflation sank to its lowest level in more than 15 years in May at 2.1%, but has risen again even as the economy, already weak before the coronavirus pandemic, is reeling from the closings and weakness. consumer demand.
“We have raised our forecast for 2020 inflation to 3.6%, as the recent jump in inflation to 3.2% indicates that inflation will likely exceed 4% by the end of the year. That would imply negative real rates, which are a major concern for the central bank, “said Francesca Beausang of Continuum Economics.
Beausang added that given the scale of the South African recession, a rate hike is unlikely any time soon.
For his part, SARB Governor Lesetja Kganyago has made it clear that he is not overly concerned about upward inflationary developments over the next 18 months as they are already embedded in the central bank’s forecast.
Inflation is expected to average 3.3% this year and accelerate to 4.2% in 2021, according to the latest Reuters poll, slightly higher than last month. Economists attribute this to the rest of the world’s economic activity rebounding after the lockdowns ended and little to do with domestic demand.
South Africa’s economy contracted a staggering 51% in the second quarter on a seasonally adjusted annualized basis. The survey showed the economy contracted 8.5% this year as a whole, 0.5 percentage point weaker than the median last month.
(Other stories from Reuters’ long-term global economic outlook survey package)
(Vuyani Ndaba report and poll; Edited by Ross Finley and Catherine Evans)
By Vuyani Ndaba
