The Reserve Bank’s monetary policy committee starts its meeting tomorrow to decide on the direction of interest rates under a little pressure as the country is now in a technical recession.
The last time the MPC met was on May 23-25, just after Stats SA announced that the country has slipped into a technical recession. This has led to a pool of economists calling for the Bank to consider easing interest rates in a bid to help alleviate the pressure on consumers. A major concern for the MPC has been that of inflation, but since it has dropped back within the Bank’s target of 3%-6%, many analysts believe rates will start to ease towards the end of this year.
The last three MPC meetings resulted in no change. “While we expect the Reserve Bank to keep the repo rate on hold again, at 7%, on Thursday, the downside surprises in CPI inflation and the technical recession should see a more dovish stance,” Kamilla Kaplan, group economist at Investec, said. CPI inflation for June will be published on Wednesday, the day before the MPC announcement. “We expect to see a further moderation to 5.1% y/y from 5.4% y/y in May.
Based on our June projection, CPI inflation would have averaged 5.3% y/y in the second quarter of 2017 compared to 6.3% y/y in the first quarter.” In its last MPC statement in May, Reserve Bank governor Lesetja Kganyago said the committee remained of the view that the current level of the repo rate at 7% was appropriate and that the MPC was likely at the end of the tightening cycle.
“A reduction in rates would be possible should inflation continue to surprise on the downside and the forecast over the policy horizon be sustainably within the target range. However, in the current environment of uncertainty, the risks to the outlook could easily deteriorate,” Kganyago said.