South Africa: Reserve Bank Predicted to Hold Rates Despite Muted Inflation, Growth - and Eskom

analysis

Inflation is tame, unemployment is sky-high, and the economy could be tipping into a prolonged recession courtesy of Eskom and ANC policy inertia. But don't expect a rate cut this week from the South African Reserve Bank.

The central bank's Monetary Policy Committee (MPC) is widely expected to hold its key repo rate steady at 6.5% this week, despite a range of economic factors which suggest it has plenty of scope to cut. In a Reuters' poll, 21 out of 24 economists said they expected the MPC to leave the rate unchanged when its statement is read on Thursday 16 January, at the conclusion of its three-day meeting.

The case for monetary loosening is clear. Consumer inflation in November was at a nine-year low of 3.6%, within spitting distance of the bottom of the 3% to 6% target range of the South African Reserve Bank (SARB). The official unemployment rate is about 30% and is in fact much higher. Consumer and business confidence levels are low and the economy may well be contracting as Eskom battles to keep the lights on. If there was a text-book case for monetary loosening, it is surely the South African economy at the start...

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