Why Lesetja Kganyago may decide not to hike interest rates on Thursday

Reserve Bank Governor Lesetja Kganyago. Picture: Renart Toerien/EWN.

(Also read: "Lesetja Kganyago – the world’s best central banker - opens up about his money".)

The South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) meets from 15 to 17 January to decide whether to hike interest rates.

The MPC hiked by 25 basis points in November 2018, bringing the repo rate to 6.75% and the prime lending rate to 10.25%.

At the time the Sarb indicated the start of an interest rate hiking cycle that could entail three more increases before the end of next year.

Despite the Sarb’ guideline (that it expects three more interest rate hikes by end-2020), PwC believes a rate hike in January to be unlikely.

The Money Show’s Bruce Whitfield interviewed Maura Feddersen, Strategy and Behavioural Economist at PwC.

Feddersen believes the central bank may keep rates stable for these three reasons:

  • Fears about the global economy have dampened oil prices and offered a petrol price reprieve.

  • Jitters on US stock markets may cause a slowing down of the pace at which the Fed tighten monetary policy.

  • The South Africa economy remains at a crossroad in 2019; demand pressures remain weak.

Nevertheless, says Feddersen, an increase of 25 basis points remains a possibility if risks to the inflation outlook materialise.

These risks include above-inflation domestic wage growth as well as rising electricity and water tariffs.

Also, rand vulnerability poses a continuing risk to the inflation outlook, which may be stoked by emerging market risk spill over, domestic economic policy uncertainty, electricity supply concerns and fiscal slippage, she says.

For more detail listen to the interview in the audio below.

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