South Africa: Sarb Likely to Hold Rates Despite Oil Worries After Attacks On Saudi Arabia

analysis

South Africa's central bank is likely to keep its key lending rate steady at 6.5% on Thursday 18 September when its MPC concludes its bimonthly meeting. The inflation and growth outlooks suggest there is scope for a cut, but there are worries on the fiscal front. And the oil price has become a cause for concern in the wake of the attacks on Saudi Arabia.

The SA Reserve Bank (SARB), which cut its repo rate by 25 basis points in July to 6.5%, has plenty of room to bring rates lower. Inflation in July slowed to a seven-month low of 4% from 4.5% in June. The economy has dodged a recession, but the growth outlook remains poor, to say the least. And confidence has been absolutely shattered: the Rand Merchant Bank business confidence index plunged to a two-decade low in the third quarter.

The case for a rate cut hardens when one looks at consumption and the retail sectors, key drivers of growth, which also remain in the doldrums. The official unemployment rate is a staggering 29% and is in reality much higher. Inflation, which the central bank targets, is relatively subdued precisely because of these factors. An economy that...

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