After a tough month fighting off attacks on its mandate, South Africa\u2019s central bankers will this week revert to their day job of trying to fulfill it – probably by holding off on a rate cut.<\/p>\n
Only three of the 23 economists surveyed by Bloomberg predict the Reserve Bank will cut the repurchase rate on Thursday from its current 7%, with the rest forecasting a more cautious approach from officials wary of switching the direction of policy too quickly. This meeting would make it the eighth straight meeting with no change in the benchmark.<\/p>\n
The Monetary Policy Committee isn\u2019t rushing to stoke monetary stimulus despite a recession in Africa\u2019s most-industrialized economy and data on Wednesday that showed the weakest inflation for more than 1 1\/2 years. That may provide a signal of the central bank\u2019s determination to preserve its independence, fending off a revamp to its inflation-fighting mandate ordered by the country\u2019s anti-graft ombudsman and described by Governor Lesetja Kganyago as \u201creckless.\u201d<\/p>\n
\u201cIf you just purely look from an economic template, then you may find a couple of points that can be ticked for a rate cut,\u201d George Herman, the chief investment officer at Citadel Investment Services in Cape Town, said by phone. \u201cUnfortunately I don\u2019t think the MPC is ready.\u201d<\/p>\n
In June, the graft ombudsman instructed lawmakers to start a process to amend the constitution to make the Reserve Bank focus on the \u201csocioeconomic well-being of the citizens\u201d rather than inflation. This roiled markets, with the rand being the most volatile among major and emerging-market currencies this year, and the instruction was condemned by the ruling party and parliament.<\/p>\n
The bank hasn\u2019t touched its key rate since March last year. One of the central bank\u2019s six-member MPC has voted for a cut at each of the last two meetings.\u00a0Inflation has eased as food-price growth slows amid the country\u2019s recovery from the worst drought in more than a century.<\/p>\n
The lender projects that inflation will remain within the target band of 3% to 6% until at least the end of 2019.<\/p>\n
The end of a rate-increase cycle doesn\u2019t mean the start of cuts, Kganyago said in a May 4 interview.<\/p>\n
Traders are pricing in a 25 basis-point rate cut by the end of the year, according to forward-rate agreements used to speculate on borrowing costs. The five-year breakeven rate, a measure of inflation expectations, is near a five-week low at 5.30%.<\/p>\n
The rand weakened 0.2% to R12.9268 by 6:27 p.m. in Johannesburg Wednesday, paring its advance against the dollar this year to 6.3%.<\/p>\n
\u201cShould inflation continue on its trend to the downside and the domestic environment become a little more stable, the SARB is likely to loosen policy,\u201d Halen Bothma, an economist at ETM Analytics, said in an emailed response to questions. \u201cThe rand is likely to retain a measure of resilience,\u201d which could likely translate to a cut as soon as September and almost certainly in November, he said.<\/p>\n
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