Will the interest rate remain the same, or are we in for another hike

All eyes will be glued to television screens at 3pm today as the Gill Marcus, governor of the South African Reserve Bank (SARB) reveals what she and her Monetary Policy Committee (MPC) believe is in the best interest of the...

In a recent Reuters’ poll eighteen of the 31 economists surveyed expected officials to leave South Africa’s benchmark repo rate on hold at 5.5% at the conclusion of the MPC’s three day meeting on Thursday. Of those that predicted an increase, seven predicted a 25 basis point hike, while six believe South Africans will see 50 basis point rise.

So will the SARB keep the repo rate on hold at 5.5%? Here two economists give their views:

Rates will stay the same

Hugo Pienaar, senior economist at the Bureau for Economic Research at the University of Stellenbosch, said that the official forecast is that the rates will remain the same.

Here is why:

• The economy is really not performing at the moment, and will therefore be better to keep the rates the same.

• The Rand is also weaker now, which could be a justification to raise the rates, but due to the point mentioned above, Pienaar believes that the rates will only increase by the end of the year.

“In January the international environment was one where emerging markets we really under pressure, a lot of other emerging markets were hiking their rates. So I think there was also a little bit of pressure on them [the Reserve Ban] to also increase the rates. I don’t think that is the case now.

“And then combined with that, the economy is really not performing. So I think that would be the justification for not putting rates up. Another justification could be that we are very close to the peak of inflation, so inflation will probably peak in the second quarter of this year and then moderating out. If the Reserve bank had a similar sort of outlook then they could justify holding off,” said Pienaar.

Pienaar went on to say that if the rates do rise, it will be by 25 base points.

Rates are set to go up

Nazmeera Moola, economist and strategist, Investec Asset Management concluded in a press release that, taking into account all the risks, a rate hike of 0.25% can be expected.

Some of the concerns included:

• Continued strikes and consequences to on the economy.

• Risk to keep rates on hold as it would be difficult for SARB to maintain their stance regarding the ‘hiking cycle’ we are said to be in.

Investec acknowledged that it would be difficult decision. Voting will probably be a lot closer than in May (when the committee voted by 5-2 to keep rates on hold).

Only time will tell which economists were right.

Will the interest rate remain the same, or are we in for another hike

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