Sarb leaves interest rates unchanged

Photo: Brand South Africa

“As expected the MPC again decided to leave interest rates unchanged. Yet The decision is set in a far better economic outlook for both inflation and growth which, if it continues, should leave room for a possible rate cut later in the year,” says North West University School of Business and Governance economist, Professor Raymond Parsons. “Political developments still hold the key to sustained economic recovery, despite a better inflation and growth outlook.

“Much will now also depend on whether the Budget on February 21 will be able to finance its deficit in growth-enhancing ways, salvage the deteriorating Eskom finances as soon as possible, and avoid universal junk status. The MPC statement implies that clear and definitive political leadership is now needed to ensure that the right economic decisions are taken soon.”

Two major risks

Tumisho Grater, economic strategist at Novare, says: “The South African Reserve Bank (Sarb) flagged two main risks, namely, the potentially significant negative impact on the rand and on long bond yields as a result of possible further sovereign credit rating downgrades. This highlights the importance of the upcoming budget speech in February, which will highlight the government’s response to financing the budget deficit in a manner that is conducive to economic growth. The SARB, yet again, pointed out the increase in international oil prices as an upside risk to inflation. The oil price assumptions in the QPM have been raised (albeit moderately).

“Apart from the stronger exchange rate, one of the key factors driving the more favourable inflation forecast include the lower electricity price assumption. South Africa’s energy regulator, Nersa, granted the state utility Eskom a 5.23% electricity tariff increase for the 2018/2019 financial year which is well below the 19.9% increase requested by Eskom.”