SA holds rates steady amid election aftermath, inflation woes
South Africa's central bank is poised to maintain its high benchmark interest rate at 8.25%, navigating political uncertainty following the nation's closest election in three decades. Despite a slight easing in inflation to 5.2%, it remains above the central bank's target range. Governor Lesetja Kganyago, reaffirmed for another term, emphasizes stability before any rate cuts. The rand's recent appreciation and potential post-election rally could influence future monetary policy if the ANC retains power. Economists anticipate rate cuts might commence in the third quarter, contingent on inflation trends and political developments.
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By Ntando Thukwana
South Africa's central bank is set to leave interest rates unchanged, staying the course in the inflation fight amid political uncertainty one day after the country's tightest election in 30 years.
Economists polled by Bloomberg expect Governor Lesetja Kganyago's monetary policy committee will keep the benchmark rate at a 15-year high of 8.25% on Thursday, when he announces the decision shortly after 3 p.m. local time. Most surveyed in a separate poll also expect the decision, which comes a day after elections, to be unanimous.
The bar for a rate cut has not been cleared yet, said Nicky Weimar, Nedbank Group Ltd.'s chief economist.
"While April's inflation report was encouraging, the rate of disinflation remains painfully slow, and it is too early to observe a compelling downward trend towards the South African Reserve Bank's target of 4.5%," Weimar said.
Although inflation eased for a second straight month in April to 5.2%, it remains above the midpoint of the central bank's 3% to 6% target range. Kganyago, who was reappointed to a third five-year term in March, has repeatedly said it will only adjust policy once inflation slows to the midpoint and stabilizes there.
Still, some economists suggest that while the elections won't influence Thursday's rate decision, they could have an impact in the future if the outcome is positive for South Africa's currency.
The rand has appreciated 3% since the MPC last met, buoyed by the view that the next government will still be led by the ruling African National Congress, keeping the country on a market-friendly path even if it has to form a coalition with a smaller rival.
Opinion polls conducted prior to the elections showed support for the ANC dipping below 50% for the first time since it came to power in 1994.
More rand gains "perhaps by way of a post-election rally in South African assets – if considered long-lasting – could conceivably influence the inflation outlook sufficiently to allow for earlier easing," said Razia Khan, chief economist for Standard Chartered Bank.
"We have a baseline that they will remove the assessment of upside inflation risks and begin cutting in the third quarter," said Andrew Matheny, economist at Goldman Sachs Group Inc., who expects rates to be held on Thursday.
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