With only fuel prices affected so far, no clear evidence yet of second-round effects from the Middle East oil shock, and food inflation remaining subdued, the decision is likely to be a close call.<\/p>\n\n\n\n
Andrew Matheny, an economist at Goldman Sachs Group Inc., expects policymakers to raise the benchmark rate by 25 basis points.<\/p>\n\n\n\n
\u201cWe expect that the policy statement will be accompanied by alternative scenarios that signal the South African Reserve Bank\u2019s readiness to tighten policy more aggressively in the event of a larger shock and, or deterioration in inflation expectations,\u201d he said. <\/p>\n\n\n\n
Fighting erupted in Iran on 28 February and disrupted traffic through the Strait of Hormuz, normally a key shipping route for about a fifth of the world\u2019s seaborne oil and liquefied natural gas, which sent energy costs soaring.<\/p>\n\n\n\n
Gasoline prices in Africa\u2019s largest economy were raised<\/a> to a near four-year high this month, and the authorities have cut levies to cushion motorists against the impact. <\/p>\n\n\n\n Even so, South Africa\u2019s inflation rate climbed to 4% in April from 3.1% in March, its highest level in\u00a020 months<\/a>. <\/p>\n\n\n\n The central bank targets inflation at 3%, with a tolerance band of one percentage point on either side.<\/p>\n\n\n\n Petrol prices are set to hit a record next month as the government\u00a0unwinds<\/a>\u00a0some of the temporary relief measures introduced after the conflict began.<\/p>\n\n\n\n The central bank is also likely to raise its inflation forecast, which was previously projected to average 3.7% this year.<\/p>\n\n\n\n This will reflect a higher-for-longer oil price outlook and the prospect of a more protracted war, said Keabetswe Mojapelo, a macroeconomist at Rand Merchant Bank.<\/p>\n\n\n\n He also expects a 25 basis-point rate increase and sees a larger hike as unlikely. \u201cThe committee will want to look through the initial shock,\u201d he said. <\/p>\n\n\n\n Policymakers would probably want to see firmer evidence of second-round effects extending beyond transport costs and becoming more broad-based across the inflation basket, he added.<\/p>\n\n\n\n Cartesian Capital Ltd. takes a contrarian view, predicting the central bank will keep rates unchanged.<\/p>\n\n\n\n The higher inflation rate, now at the upper end of the central bank\u2019s target range, has been driven by exogenous factors that it cannot directly manage, Anthea Gardner, managing partner at Cartesian, said.<\/p>\n\n\n\n \u201cThe SARB playbook for supply shocks, historically, has been to look through the first-round impact, watch closely for second-round effects,” she said.<\/p>\n\n\n\n “We haven\u2019t seen [these] come through yet.”<\/p>\n\n\n\n Gardner said the SARB will likely avoid making urgent policy changes before there is clear evidence that inflation will, in fact, remain persistently higher.<\/p>\n\n\n\n There are other factors narrowing the chance of a rate hike. <\/p>\n\n\n\n They include improvements in South Africa\u2019s fiscal position, a currency that has remained relatively stable despite the war, and contained imported inflation, said Tertia Jacobs, a treasury economist at Investec.<\/p>\n\n\n\nOne economist expects a hold<\/h2>\n\n\n\n
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