Business In The News South Africa

Price pressures from petrol, electricity to prevent interest rate cut

JOHANNESBURG, November 23 – South Africa’s central bank is likely to keep interest rates unchanged despite a struggling economy when it concludes its last policy meeting of the year on Thursday, hamstrung by looming inflation pressures from rising energy prices.


The Reserve Bank’s monetary policy committee, which is chaired by Governor Lesetja Kganyago and sits six times a year to plot the direction of interest rates, started its final consultation for 2017 on Tuesday. Kganyago will announce its decision at a news conference from 1500 hours on Thursday.


The bank kept its repurchase rate, the benchmark for the market, at 6.75 percent in September, despite calls by beleaguered South Africans to lower borrowing costs and help boost an economy still limping after languishing in recession earlier this year.


The National Treasury expects growth of just 0.3 percent in 2017, far below the levels needed to bring in much needed jobs and slash official unemployment of nearly 28 percent.



The central bank’s September interest rate decision followed a 0.25 percentage point reduction in July, which was the first time it had cut rates in five years.



But inflation pressures are set to rise, with a weaker rand currency over the last two months, and higher global prices likely to result in a sharp petrol price increase in December. Power utility Eskom is also pushing for higher tariffs.




But political uncertainty in South Africa, most notably around the ruling African National Congress (ANC) party’s December conference to elect a new leadership, have kept investors jittery about the outlook for the economy, putting pressure on the rand and likely inhibiting any further monetary policy easing.




“As things stand, political uncertainty is likely to delay further rate cuts for the foreseeable future and the economic situation is in somewhat of a ‘holding pattern’ until the ANC elective conference,” Andrew Golding, Chief Executive of the Pam Golding Property group, said in a recent presentation.



The ANC meeting comes against the backdrop of business confidence that is at its weakest in decades, due to corruption charges levied against senior government officials, including President Jacob Zuma.


South Africa also faces the risk of further downgrades to its credit rating on Friday, when agencies S&P Global and Moody’s are due to issue their latest reviews.



S&P has already cut South Africa’s foreign debt to sub-investment grade, but Moody’s still rates the country above “junk” status for debt denominated in both foreign and local currency. Their peer, Fitch, ranks South Africa below investment grade for both.



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