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Africa|Electrical|Energy|Power
Africa|Electrical|Energy|Power
africa|electrical|energy|power

Reserve Bank to keep repo rate at 6.5% on Jan 16

10th January 2020

By: Reuters

  

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South Africa's Reserve Bank will keep interest rates unchanged on Thursday as it awaits a February budget and a ratings review by Moody's due in the next few months, but will cut by 25 basis points in May, a Reuters poll found on Friday.

All but three of the 24 economists surveyed over the past three days said the repo rate would be kept unchanged at 6.5% on Jan. 16. That would be the third meeting to leave policy unchanged since the bank cut rates in July by a quarter of a percent.

Francesca Beausang at Continuum Economics said the Reserve Bank would avoid a rate cut in the first quarter ahead of the February budget which is expected to have significant implications for Moody's decision on the country's credit rating.

The poll suggests the Reserve Bank will cut rates in May by 25 basis points to 6.25% and then hold steady through next year.

Beausang said one last cut in the second quarter was needed to give consumers a confidence boost and offset some of the short-term disruptions hit to growth from a disrupted electricity supply.

"However, inflation should then accelerate and peak in Q3-2020 given farmers are expected to sow 2.8% fewer hectares of maize than in the previous season and electricity tariffs are likely to increase," she said.

The survey medians suggested inflation was expected to average 4.8% this year, 0.2 percentage points faster than in last month's survey.

"Inflation is not likely to be a problem but also if (power utility) Eskom get the R69-billion relief from Nersa then that alone will add at least 1% to inflation directly if not close to 1.5% with a normal increase added," said Mike Schussler at Economists.co.za.

Eskom has lodged a court application to review the National Energy Regulator of South Africa's (Nersa) decision to deduct R69-billion of tariff revenues.

Last March, Nersa granted Eskom tariff increases of 9.4%, 8.1% and 5.2% over the next three years, far below what the utility had sought. At the time Eskom said the tariff awards left it with a projected revenue shortfall of around R100-billion.

Schussler added that normally in this situation - without the Moody's and Eskom worries - rates could decline up to 75 basis points.

The economy is expected to grow 0.9% this year and 1.4% next year. The previous poll estimated a 0.4% expansion last year but electrical power shortages at the end of 2019 have likely trimmed last quarter's performance.

Some analysts are of the view that SARB models have consistently overestimated the rand's pass-through to consumer inflation in recent years, thereby overestimating inflation.

The rand shed around 2% last year, partly shielded by resilient positive sentiment for emerging markets.

Edited by Reuters

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