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South Africa seen keeping rates at 6.75% – poll

ANC succession conference critical to future rate path.

South African’s central bank will keep rates unchanged next week, a Reuters poll suggested on Wednesday, as economic risks mount before December’s leadership conference for the ruling African National Congress.

All but two of the 28 economists surveyed over the past week said rates would stay at 6.75% at the November 23 Reserve Bank meeting. The other two said they expected a 25-basis-point cut.

Last month’s poll suggested rates could be cut to 6.50% in January or March, then remain there for the rest of 2018. The new poll suggested there would be no cut at all until early 2019.

“It is really because we feel we need to get a sense of where South African politics is going next year,” said Kevin Lings, economist at Stanlib in Johannesburg, who predicted no change.

The ANC is due to pick a successor to president Jacob Zuma next month to lead it into 2019 national elections.

Surveys since July had suggested the Reserve Bank was in a cutting cycle. But that view has been tempered by worries about potential sovereign credit ratings cuts by S&P Global and Moody’s on Nov. 24 after a dire October medium-term budget review.

If either cut their ‘local debt’ ratings, the government’s $125 billion stock of rand-denominated debt will no longer be eligible for the world’s big global bond indexes.

That would almost certainly trigger widespread selling and pile more pressure on the government by driving up its borrowing costs. Johannes Jordaan of Economic Modelling Solutions also listed prospects for higher international oil prices, double digit electricity tariff increases and further expected tightening of US monetary policy as risks to South Africa’s outlook.

Still, inflation is expected to slow slightly next year to an average of 5.2% from an estimate of 5.3 for this year.

Governor Lesetja Kganyago said his central bank would like to see inflation expectations anchored at around 4.5%, compared with 5.1% now.

Kganyago said the volatile rand was the biggest risk to inflation forecasts.

In a separate Reuters poll last week, the rand was seen keeping a steady path of around 14.00 per dollar over the next 12 months, however, weaker investor sentiment means it is currently at 14.40/$. 

Economic growth in South Africa, the continent’s most industrialized economy, is expected at 1.2% next year, up from a median of estimates for 0.7% this year.

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