The Reserve Bank faces a dilemma on whether to hold or adjust interest rates in the wake of rising inflation and fluctuations in fuel prices.
The central bank will announce a decision by the monetary policy committee on Thursday.
Despite recent data from Statistics South Africa (Stats SA) showing a third consecutive monthly increase in inflation economists, including chief economist at Econometrix Azar Jammine, predict that the central bank, led by governor Lesetja Kganyago, will opt to maintain the current rates.
The repo rate stands at 8.25% and the prime interest rate sits at 11.75%.
If the Reserve Bank indeed decides to maintain these rates, it will mark a third consecutive pause – a move aimed at providing relief to struggling consumers in the face of tough economic challenges.
Drop in fuel price
Jammine believes the anticipated drop in petrol and diesel prices, slated for December, could significantly alleviate inflationary pressures.
He said the slump in fuel costs should dissuade the Reserve Bank from implementing a rate hike at this point and anytime soon, as inflation is likely to stabilise in the future.
“The only reason they would hike the rates is due to the increasing inflation in case its re-pressures, but they [Reserve Bank] know very well that the overall inflation is going to decline in the next couple of months, there is no need to hike,” he said.
“They will leave the repo rate unchanged.”
Data from the Central Energy Fund earlier in November showed that petrol prices may be cut by over R1 a litre in December while diesel prices are expected to drop by R2 or more.
Inflation hits 5.9%
Despite the anticipated temporary reprieve, inflation remains a concern. The inflation ticked up and reached 5.9% in October, according to Stats SA.
The figures which were released on Wednesday indicated a third consecutive monthly increase, with consumer prices rising by an average of 0.9% between September and October, the highest monthly rise recorded in three months.
A notable contributor to the spike in inflation was a surge in food prices, particularly driven by panic-buying related to the scarcity of eggs and other poultry products.
As the Reserve Bank carefully navigates this delicate balancing act between economic challenges and inflation concerns, a decision on interest rates takes on heightened significance.
