SARB's MPC meeting on policy rates still difficult one to call, believe some economists

Some economists believe this week's meeting by the South African Reserve Bank (SARB)'s Monetary Policy Committee (MPC) on policy rates is still a difficult one to call.

This week, the central bank's MPC will deliberate on the repo rate for the sixth and final time of the year.

The benchmark rate currently sits at 7%, while the prime lending rate sits at 10.5%.

Economists at Nedbank said their inflation forecasts suggest reason for caution, but that the upside risks to the outlook appear limited and monetary policy seems a bit restrictive for an economy lacking any meaningful momentum.

Since the September MPC meeting, global inflation has remained muted, rising slowly in the United States (US), but easing towards or staying near central bank targets elsewhere.

Nedbank said there is also good reason to believe that the disinflationary trend outside the US will persist and possibly intensify.

The rand, which dropped below the R17 mark briefly last week, has benefited from a shrinking country risk premium, brought about by the Reserve Bank's moveto a lower inflation target, the country's removal from the Financial Action Task Force (FATF) grey list and a slightly better fiscal outlook.

After predicting a hold, Nedbank now believes there is room for a 25-basis-point cut.

Economists at the Bureau for Economic Research said the firm target announcement by the National Treasury and expected revisions to the SARB’s near-term rand and oil price forecast, could sway majority of the MPC to vote in favour of a cut, with the possibility of a 50bps rate cut on the table.

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