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Reserve Bank expected to cut rates soon

A median forecast from 24 economists, polled this week, suggests the economy will grow 0.6% this year, slower than last year’s 0.8% and weaker than the 1.1% predicted in a May poll.

South African Reserve Bank Governor Lesetja Kganyago. Picture: AFP

JOHANNESBURG - The South African Reserve Bank will probably cut interest rates next month or in September to boost the country’s economy, a Reuters poll found on Friday.

A median forecast from 24 economists, polled this week, suggests the economy will grow 0.6% this year, slower than last year’s 0.8% and weaker than the 1.1% predicted in a May poll. Growth is expected to accelerate next year to 1.4%.

Economists reckon this year’s slow growth should be enough to convince authorities to cut interest rates by 25 basis points to 6.50%.

Ten of 18 economists predicted rates would be cut in one of next quarter’s two policy meetings - July or September - a substantial uptick in expectations for lower rates. Last month, only two people forecast rate cuts.

“Inflation is now well-anchored within the 3% to 6% target range, and the economy is performing very poorly,” said John Ashbourne, senior emerging markets economist at Capital Economics. “We’ve pencilled in a cut from 6.75% to 6.50% at July’s meeting.”

On Wednesday, the US Federal Reserve signalled rate cuts may begin as early as July, in the face of growing global and domestic economic risks. Central banks in Australia, India, New Zealand and Russia have already cut rates.

The repo rate will probably remain at 6.50% until the end of 2021 at least, the economists said. Inflation is expected to average 4.5% this year and 5.0% next year.

The bank left theft the repo rate unchanged at 6.75% in May, judging that easing inflation and an economy it believed shrank in the first quarter were not enough to warrant a cut.

Two weeks later, the statistics agency confirmed growth contracted by a quarterly 3.2% in the first three months of 2019. The bank, along with President Cyril Ramaphosa’s incoming administration, is under pressure to revive growth.

Monetary policy has taken centre stage recently, with senior officials from South Africa’s governing party contradicting each other over whether the party had decided to expand the central bank’s mandate to include growth.

The rand has recovered to 14.23 per dollar, almost in line with a Reuters poll earlier this month that also said emerging-market investors would be more cautious and selective in making risky bets against a strong dollar in coming months.

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