S. Africa expected to hold rates aimed elections

South Africa’s central bank is poised to maintain interest rates unchanged, remaining steadfast in the battle against inflation amidst political uncertainty following the country’s most tightly contested election in three decades, Bloomberg reported.
According to economists surveyed by Bloomberg, Governor Lesetja Kganyago’s monetary policy committee is anticipated to hold the benchmark rate steady at a 15-year high of 8.25 per cent on Thursday, with the announcement scheduled shortly after 3 pm local time.

Most respondents in a separate poll also anticipate a unanimous decision, coinciding with the day after the elections. “The bar for a rate cut has not been cleared yet,” remarked Nicky Weimar, chief economist at Nedbank Group Ltd.

“While April’s inflation report was encouraging, the rate of disinflation remains painfully slow, and it is too early to observe a compelling downward trend towards the South African Reserve Bank’s target of 4.5 per cent,” Weimar said.
Despite inflation easing for a second consecutive month in April to 5.2 per cent, it remains above the midpoint of the central bank’s 3 to 6 per cent target range.

Kganyago, who secured a third five-year term in March, has consistently stated that policy adjustments will only occur once inflation decelerates to the midpoint and stabilizes there.
Nevertheless, some economists speculate that while the elections may not impact Thursday’s rate decision, they could have future implications if the outcome proves favourable for South Africa’s currency.
Since the MPC’s last meeting, the rand has appreciated by 3 per cent, driven by optimism that the ruling African National Congress will continue to lead the next government, thereby maintaining a market-friendly trajectory, even if it necessitates forming a coalition with a smaller party.

Pre-election opinion polls indicated a decline in support for the ANC below 50 per cent for the first time since its ascendancy to power in 1994.

“More rand gains – perhaps through a post-election rally in South African assets – if considered long-lasting, could conceivably influence the inflation outlook sufficiently to allow for earlier easing,” said Razia Khan, chief economist for Standard Chartered Bank.

“We have a baseline that they will remove the assessment of upside inflation risks and begin cutting in the third quarter,” noted Andrew Matheny, economist at Goldman Sachs Group Inc., who anticipates rates to remain unchanged on Thursday.