Johannesburg – Economists are divided on whether the South African Reserve Bank should cut interest rates to aid economic growth or hold them steady at the current record low level.
The central bank left its benchmark repo rate unchanged at 3.5% during its January meeting.
However, the decision was not unanimous and followed 300 basis points rate cuts in 2020 to support an economy already in recession before the pandemic.
The bank’s monetary policy committee (MPC) will conclude its second meeting of the year on Thursday and make its decision on monetary policy public. University of South Africa economics lecturer Mzwanele Ntshwanti is calling for a rate cut.
“The economy remains demand-constrained. The central bank needs to create the space for dynamism in the economy and aid government’s att empt to grow the economy,” said Ntshwanti.
The MPC is likely to hold the repo rate, according to a unanimous vote by 25 economists on Finder’s repo rate forecast report.
Stanlib economist Ndivhuho Netshitenzhe said the central bank would likely hold off interest rates.
“While the inflation rate is expected to show some upward bias, South Africa’s inflation remains broadly well under control at both a headline, as well as a core level,” said Netshitenzhe.
“As such, it is probably the best option that the Reserve Bank takes a wait-and-see approach in the short term and not lift interest rates too soon as this would stifle any emerging pent-up demand in the economy, especially since the upward trend in inflation is expected to be short-lived and likely to be accentuated by low-base effects.”
Her view was shared by BNP Paribas chief economist Jeff Schultz, who said the MPC will most likely be united in a decision to hold the rate given economic uncertainties.
“A rise in global commodity prices, most notably oil, coupled with a return to shaky risk sentiment stemming from a ramp-up in core rates markets indicates to us that the central bank is likely to remain calm and prudent, maintaining policy rates at the current 3.50% in March,” said Schultz.
“Given more acute global economic uncertainties, we expect a less divided committee in favour of keeping policy rates unchanged this month.”
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