Split decision: Economists unsure of which way SA rates will go
By Carin Smith
Cape Town – The SA Reserve Bank (SARB) will probably raise interest rates in anticipation of a likely US interest rate lift-off in December, economists said ahead of the Monetary Policy Committee's decision on rates later on Thursday.
Nedbank's economic unit said the SARB may feel more justified now to raise rates than in July as the inflation outlook has deteriorated somewhat due to the weaker rand and higher food prices.
Stats SA announced on Wednesday that annual consumer inflation increased to 4.7% in October from 4.6% in September, mostly in line with market expectations. On a monthly basis prices increased by 0.3% as a result of, among others, contributions of 0.1 percentage points each by the food and non-alcoholic beverages as well as the transport categories.
Nedbank said it expected the main part of the SARB's hiking cycle to be in the first half of 2016, as the MPC responds to rising inflation and interest rate normalisation in the US.
Nomura's emerging markets analyst Peter Attard Montalto, said the latest CPI data would have no real impact on the SARB's decision, but that it would rather focus on what will happen to interest rates in the US in December.
He expected the SARB to focus on medium-run inflation risks, wage fears and upside skew in the inflation forecast and reckoned the MPC will hike rates by 25 basis points on Thursday.
"Today's decision is still ultimately about risk management with respect to the FOMC lift-off in December… is (it) worth taking the risk of not hiking tomorrow and the FOMC going in December? We don't think the MPC will take that risk and will hike by 25bp."
John Loos, household and property sector strategist at FNB Home Loans, expected the SARB to keep rates on hold on Thursday because of the inflation impact on lower income groups.
He said housing CPI remains the key "troublesome" part of CPI inflation, but his biggest concern was that the lower income groups continue to have higher CPI inflation, namely an inflation rate of 5.34%. This is mainly due to the impact of food price and public transport inflation on this income group. Public transport CPI has not been deflating this year despite sharply lower petrol prices.
Fin24
Source: http://www.fin24.com/Economy/economists-split-on-rates-call-20151119
South Africa Rate Bets Pared in Meeting Too Close to Call
By Rene Vollgraaff
(Bloomberg) — Investors pared bets that South Africa's central bank will tighten monetary policy on Thursday in a decision that's confounding traders and policy makers as they anticipate the U.S. Federal Reserve's first rate increase in almost a decade.
Forward-rate agreements starting in one month, used to speculate on borrowing costs, show a less than 40 percent chance that the Reserve Bank will raise the benchmark rate by 25 basis points to 6.25 percent, according to data compiled by Bloomberg. That's down from close to 70 percent probability on Nov. 13. Of the 26 economists surveyed by Bloomberg, 16 predict the rate will stay unchanged, while the rest expect a quarter-point increase.
Read also: SARB puts a smile on bleak inflation outlook
"It's very close," Bart Stemmet, an economist at NKC African Economics, said by phone from Paarl, outside Cape Town. "They might just decide not to hike on Thursday, but then to do it in January."
Governor Lesetja Kganyago and his team have been wary of tightening policy in the face of a weak economy, adopting a gradual approach that's seen the benchmark rate raised three times since the beginning of last year. Higher interest rates in the U.S., which may come as early as next month, has the potential to drag the rand down further after it plunged to a record low against the dollar this week.
Inflation pressures are rising at the same time that low global demand, falling metal prices and an electricity shortage weigh on the economy. Gross domestic product contracted in the three months through June, while retail sales fell 1.9 percent in September from a month earlier, according to the statistics office.
The inflation rate, which rose to 4.7 percent in October, is forecast by the central bank to breach the 3 percent to 6 percent target next year. Core inflation, which excludes food, gasoline and energy costs, slowed to 5.2 percent in October, a two-year low, from 5.3 percent in the previous month, the statistics office said on Wednesday.
The rand gained 0.4 percent to 14.1146 per dollar by 7:27 a.m. in Johannesburg on Thursday, paring its decline this year to 18 percent.
"So far, there have not been a lot of second-round effects from the weaker rand, but they talk about it and I think they are worried that the Fed might be the last straw," said Stemmet.