For the first time this year, economists are divided over whether South Africa\u2019s central bank will continue to leave interest rates at a 2009 high or loosen them. <\/p>\n\n\n\n
Those favoring a cut argue that the recent formation of a market-friendly coalition government that\u2019s committed to implementing economic reforms has reduced the nation\u2019s political risk, providing scope for the bank to ease policy. <\/p>\n\n\n\n
They also cite factors such as rand strength, declining\u00a0inflation expectations\u00a0and\u00a0US data\u00a0reinforcing the case for the Federal Reserve to loosen monetary policy soon.<\/p>\n\n\n\n
Goldman Sachs Group Inc. and Deutsche Bank AG are among three of 23 participants<\/strong> in a Bloomberg survey predicting Governor Lesetja Kganyago\u2019s monetary policy committee will reduce interest rates by 25 basis points. <\/p>\n\n\n\n Most economists in a separate Bloomberg survey also expect the MPC to be split on the decision, with one member favouring a 25 basis-point cut and the other five a hold.<\/p>\n\n\n\n \u201cWith the South African Reserve Bank likely to undertake dovish forecast revisions \u2014 to both inflation and growth \u2014 at the July MPC meeting, we think that the economic case for a rate cut has now strengthened considerably,\u201d Goldman\u2019s Andrew Matheny said in a note.<\/p>\n\n\n\n The rest of the economists surveyed expect the bank to hold at 8.25% for a seventh straight meeting, with some seeing the possibility of easing in September. <\/p>\n\n\n\n Kganyago has previously signaled the MPC will only ease policy when the annual inflation rate has declined sustainably at the 4.5% midpoint of the bank\u2019s target range; it was at 5.2% in May.<\/p>\n\n\n\n While the MPC \u201ccould happily cut in July,\u201d given lesser inflation and currency risks, they may be inclined to take a gradual approach and opt to wait, said Kim Silberman, an economist and macro strategist at Matrix Fund Managers, who anticipates a hold. \u201cThey don\u2019t like to surprise the market.\u201d<\/p>\n\n\n\n The rate decision, expected shortly after 3 p.m. local time, will be delivered virtually by Kganyago, who will be in Cape Town to attend the opening of Parliament by President Cyril Ramaphosa at 7 p.m.<\/p>\n\n\n\n The president is likely to be among those pinning their hopes on the central bank taking a more dovish stance as the government seeks to kickstart an economy that\u2019s been misfiring for years.<\/p>\n\n\n\n The youth unemployment rate\u00a0stands\u00a0at almost 46% and the National Treasury expects gross domestic product to expand by an average of\u00a01.6%\u00a0annually through 2026, insufficient to keep pace with population growth.<\/p>\n\n\n\n Ramaphosa is expected to outline priorities and programs agreed by his new multi-party cabinet at a\u00a0meeting\u00a0held over the weekend.<\/p>\n\n\n\n The atmosphere at the planning session, known locally as a lekgotla, had \u201ca spirit of cordiality such that we will be able to grow this economy\u201d and tackle youth unemployment, said Finance Minister Enoch Godongwana on Wednesday. <\/p>\n\n\n\n \u201cWe will say something, I think we can reorganize the budget, we can reorganize this government using the same envelope.\u201d<\/p>\n\n\n\n
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