The South African reserve bank in Pretoria. (Photo: Waldo Swiegers / Bloomberg via Getty Images)
The looting and rioting that devastated a number of companies in KwaZulu-Natal and Gauteng after the imprisonment of former President Jacob Zuma will fuel economic growth in throttle this year, but a rate cut is not expected to be triggered this week when the Monetary Union’s Central Bank Policy Committee (MPC) meets.
The consensus of a Reuters poll of economists is that the MPC will raise the key rate The South African Reserve Bank (Sarb) will hold steady at 3.5% and keep the prime rate for consumers at 7%, with an increase early next year. Interest rates were cut by an unprecedented 300 basis points last year amid the extraordinary economic collapse caused by the Covid-19 pandemic and the lockdowns to contain it.
“Our reading of Sarb rhetoric over the past few weeks is clear: interest rates cannot stay at record lows forever and Sarb prefers a normalization of monetary policy in the second half of 2021 and not in 2022, as the consensus estimates from Reuters currently imply, ”Jeff Schultz, Senior Economist at BNP Paribas South Africa, said in one Comment on the upcoming MPC.
“We anticipate that Sarb will initiate a gradual normalization cycle at its MPC meeting in July, increasing in both September and November and increasing the repo rate to 4.0% by the end of 2021 . “
Of course,” normalization “would imply a” normal situation “, and South Africa’s wildly distorted, at best always abnormal political Economics is insane right now and is barking at the moon.
One of the factors that could keep Sarb in hand for the remainder of this year is the extent of the economic damage caused by the worst social unrest in decades – what testifies in a country that has recorded over 2,000 registered protests over the provision of services since 2004, compiled by the consulting firm Municipal IQ.
PwC estimates that economic growth will be 0.4 percentage points lower in 2021 due to the ongoing unrest and 50,000 jobs could be at risk from reopening supply chains.
Sarb’s revised growth forecast will be of more than temporary interest when the MPC’s decision is announced on Thursday, July 22nd. In May, growth of 4.2% in 2021 was forecast after shrinking 7.0% last year.
The rand’s performance will also be a key driver of monetary policy development. According to Bloomberg, the currency was knocked off its pedestal this week as the top performing emerging market currency to date in 2021. However, on Thursday morning, July 15, it posted slight gains, hitting around 14.50 a dollar after the chairman of the U.S. Federal Reserve, Jerome Powell, had signaled that the US Federal Reserve would likely keep interest rates low despite mounting inflation concerns. The jargon at play here is “seeking returns” – which means that the difference between US and South African interest rates is still large enough for investors to benefit from putting money in rand assets / p> The rand was also supported by rising prices for major commodity exports, which were reflected in strong trade, terms-of-trade and current account surpluses. But that depends on exports going through ports, especially Durban, and key economic arteries like the N3 were still blocked at press time.
South African consumer inflation accelerated to a 30-month high in May, accelerating from 4, 4% in April to 5.2%.
However, this was in line with expectations, was largely due to base effects and remains within the Sarb inflation target of 3 to 6%.
Economists by and large are not assuming it assumes that the target will be exceeded this year. This should also help keep the MPC’s finger on the rate trigger.
And the rebuilding demanded by businesses large and small in the wake of the devastation will require a tsunami of credit. It will be crucial to keep this relatively cheap. DM168
This story first appeared in our daily newspaper, Daily Maverick 168, which is available free of charge to Pick n Pay smart shoppers in these Pick n Pay stores until July 24, 2021. From July 31, 2021, DM168 for R25 are available at Pick n Pay, Exclusive. available books and airport bookstores.
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