Reserve Bank expected to keep repo rate unchanged

The Reserve Bank is likely to keep the repo rate at 6.75% this week, economists say.

The Reserve Bank’s Monetary Policy Committee (MPC) will meet for two days this week to make a decision on the interest rate which will be announced on Thursday.

In a market report, Investec economist Kamilla Kaplan said that the SA Reserve Bank (SARB) would likely remain on “guard” as it considers the inflation outlook which is expected to be higher mainly due to the increase in electricity prices, or close to the upper end of the 3% to 6% target range in 2020.

 “CPI inflation is set to rise back towards the upper end of the target range in 2020 on low base factors and high administered price increases (especially electricity),” Kaplan said.

Statistics South Africa will on Wednesday release inflation data for April, ahead of the rates announcement. “CPI inflation is projected to have remained steady at 4.5% y/y in April,” Kaplan said.

In a separate market report, Investec Chief Economist Annabel Bishop said inflation is expected to rise to 5.5% in 2020. “The SARB is not expected to cut its interest rates this year,” Bishop added.

Mamello Matikinca-Ngwenya, FNB Chief Economist is of the view that April inflation would “edge up” by 0.1 of a percentage point to 4.6%. The increase is mainly driven by the R1.31/l petrol price hike, Matikinca-Ngwenya said.

“On the back of muted expectations for inflation, we expect the SARB MPC to keep the repo rate unchanged at 6.75%,” she added.