Some economists believe SARB will keep repo rate unchanged

JOHANNESBURG - A day after inflation remained steady at 3.2%, some economists believe the South African Reserve Bank (SARB)’s monetary policy committee (MPC) is likely to keep the repo rate unchanged on Thursday.

Stats SA said the consumer price inflation flat-lined in February, putting an end to three consecutive increases in the months prior.

The central bank’s MPC will wrap up its meeting on policy rates later on Thursday, with renewed concerns about inflation expected to weigh on the six-member committee.

With consumer price inflation sitting on the lower end of the Reserve Bank’s 3% to 6% target band, it’s well below the 4.5% midpoint.

However, with the current domestic and global landscape, that on its own is not enough to guarantee a repo rate cut on Thursday.

Wits Business School Professor, Jannie Rossouw said the recent value-added tax (VAT) increase has added a spanner in the works.

“It will increase inflation expectations because we know that higher VAT often leads to higher inflation.”

The Bureau for Economic Research released its report on inflation expectations this week.

It said the key gauge on inflation expectations for the next two years has increased slightly, with the forecast now up to 4.7% through 2027.

But expectations for this year fell to 4.3% from 4.5%.

Economist at Sanlam Investments, Patrick Buthelezi said the Trump factor is also reason for caution.

“Escalating trade wars are raising concerns about higher inflation, which could keep interest rates higher for longer or even result in renewed hikes.”

Reserve Bank governor Lesetja Kganyago previously warned that tariff increases are a risk to the global economy and may reverse the recent cycle of policy easing by central banks.

Should actual inflation continue to undershoot, inflation expectations remain well-behaved, and the US Fed resumes its cutting cycle, the Bureau for Economic Research said the SARB may be tempted to cut again later this year.