Expect a rate hike in January: analyst
Bank of America Merrill Lynch has released a new global research report for South Africa.
It focuses on the South African Reserve Bank’s (SARB) interest-rate decision, due to be announced on Thursday (22 November).
According to analysts Ferhan Salman and Rukayat Yusuf, the SARB is likely to keep the policy rate at 6.50% on November 22 – which would lead to a 25bp hike in January.
“We believe the lagging cyclical recovery, easing oil prices and rand recovery buy the SARB more time to assess the state of the economy in the 3Q GDP print and inflation momentum thereafter,” Salman said.
The risk to our call is the hawkish composition of the Monetary Policy Commission, he said.
“We forecast average headline inflation at 4.7% in 2018 increasing to 5.3% in 2019/20 versus the SARB’s 5.6% next year. The difference reflects our downward revision to oil prices next year and our more negative output gap.”
On a positive note, the analysts believe that South Africa’s GDP growth is likely to outpace the SARB’s forecasts.
“We see potential growth of 2.0% by 2020 versus the SARB’s 1.4%.
“We forecast GDP growth to reach 0.9% this year (with risks to the downside), improving gradually to 1.9% by 2020,” Salman said.
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