JOHANNESBURG – The South African Reserve Bank is expected to wait until early next year to raise interest rates, soon after a rate rise in the United States that could weaken the rand and stoke local inflation, a Reuters poll found.
Expectations that US rates will rise next month are already pushing emerging market currencies to record lows. The rand hit its own low of 14.3860 on Tuesday.
There is a fairly high median probability – 45% – South African rates will rise on November 19. But economists generally considered the risk of choking an economy struggling with high unemployment too great to act just yet.
Twenty-one of the 35 economists polled in the past week expect the bank to keep rates at 6.00% at its last meeting of the year on Thursday. The rest predict a 25-basis-point increase.
“We see the rand depreciating further against the dollar if the SARB does not increase rates in November, creating even more upside risk for inflation,” said Juri Kren, analyst at 4CAST. “Therefore, if not in November, we will see the SARB increase rates in their next meeting in January.”
The median forecast shows the central bank raising rates early next year to 6.25% and raising them another 25 basis points in May.
SARB Deputy Governor Francois Groepe said last week with growth sluggish the central bank sees itself tightening monetary policy only gradually, but was ready to move if inflation accelerated.
“South Africa does not have to hike interest rates as, or before, the US does and domestic factors need to have equal if not greater consideration, particularly the very weak state of South Africa’s GDP growth,” wrote Investec economist Annabel Bishop.
The South African economy is expected to grow 1.5% this year and 1.7% in 2016. Consumer inflation is estimated to average 4.7% this year but to come close to the Bank’s upper target of 6.0% next year. In the first quarter it will breach that ceiling.