Rates cuts on hold until at least 2020 because of downgrade: analysts
South Africa’s debt downgrade to junk status and the finance minister’s recent dismissal mean interest rates will be on hold until 2020 at least, a Reuters poll of economists found on Wednesday.
The economists in the poll, taken a week after Fitch Ratings Agency and Standard & Poor’s downgraded South Africa to “junk”, said that the downgrades had all but officially ruled out rate cuts altogether and could instead, lead to the possibility of hikes.
Medians from the poll suggest rates will be on hold at 7% until at least 2020, the end of the forecast horizon a heavy contrast to a similar poll taken by Reuters last month in which the majority of economists found that a 25 basis point cut was expected early next year.
On Monday, 10 April, the South African Reserve Bank said the rand had re-emerged as a risk to inflation following an increase in domestic political uncertainty. However it noted that it was still too early to announce the likelihood of changes to the rates.
This cautious optimism by the SARB and the polled economists was echoed by KPMG’s Christie Viljoen who said he did not think the SARB would tighten monetary policy.
“Rather, a likely upward adjustment in their inflation expectations will result in a delay in the eventual downward movement in lending rates,” he said.
Read: ‘Some comrades do not understand ratings downgrade’ – ANC’s Godongwana
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