SARB likely to keep repo rates unchanged for now

The South African Reserve Bank’s MPC is expected to maintain the repo rate at 7 percent during its upcoming meeting this Thursday, according to Barclays. The previous meeting took place two months ago. Since then the data for July inflation was released that showed an unexpected marginal move to the downside. Before the Thursday’s meeting, the central bank would have a chance to see the August CPI print, which would be released on Wednesday. The country’s core inflation is expected to indicate a slight rise of 0.1 percentage point to 5.8 percent year-on-year, thanks to delayed FX effects, stated Barclays.

But the severe cut of 7.6 percent month-on-month in fuel prices is expected to push down the headline CPI inflation into the target range at 5.9 percent in August for a brief period of time. However, the near-term outlook for the headline CPI inflation continues to be for an upside breach of the SARB target range, noted Barclays. But the balance of risks to the outlook of inflation is expected to have remained quite unchanged since the previous MPC meeting.

On the economic outlook front, the second quarter national accounts data showed a surprise on the upside with GDP expanded 3.3 percent sequentially. However, early third quarter indicators of real economic activity imply a loss of momentum. Within mining, output declined 2.4 percent month-on-month, equal to -6.4 percent year-on-year, as compared with the consensus expectations of a decline of 1.4 percent.

The weakness was widespread in the underlying data with output from three of the four major commodities declining. Moreover, production in manufacturing sector also declined sharply in July by 1.5 percent month-on-month, delivering an annual growth pace of 0.4 percent. The recently released retail sales data was also weaker than anticipated, indicating a contraction of 0.4 percent month-on-month after a decline of 1.9 percent in June.

“Overall, we see the weakness in the recent data as a signal that growth momentum remains soft and this supports our view that the SARB will stay on hold at next week’s MPC meeting”, added Barclays.