There will be no early Christmas gift from the SA Reserve Bank (Sarb) on Thursday in the form of a rate cut to give Black Friday shoppers a liquidity lift. Nor will the Monetary Policy Committee (MPC) be a Grinch and raise borrowing costs by hiking rates. It is expected to hold its repo rate at 8.25%, which will keep the prime lending rate at 11.75%.

That is the overwhelming view of economists and the markets ahead of the SA Reserve Bank’s last scheduled MPC meeting of the year, which concludes on Thursday. A Reuters poll of 20 economists was unanimous in forecasting a hold, mirroring the Bloomberg consensus.

“The rand has strengthened notably since the previous meeting in September, while international oil prices have also come down considerably, boding well for South Africa’s near-term inflation outlook. Our base case is for the Sarb to stay put this week,” Jee-A van der Linde, senior economist at Oxford Economics Africa, said in a preview of the MPC.  

The rand rallied last week to its highest levels against the dollar since the end of July after US inflation data raised market expectations that the US Federal Reserve’s tightening cycle had peaked and that rates could start easing next year in the world’s largest economy.

Read more in Daily Maverick: Rand rallies as dollar is dealt a global setback after markets bet interest rates have peaked 

That diminishes the yield appeal of the dollar while raising the appeal of other currencies. The rand started this week trading around 18.30/dlr and if it can cleanly break through technical levels of about 18.20/dlr, it could be on track to extend its recent gains further.  

Economists do not see the Sarb — which hiked rates by 475 basis points between November 2021 and May of this year to curb inflation — making any cuts before at least the second quarter of 2024 as it will want to make sure that price pressures are contained. 

South Africa’s consumer price index (CPI) accelerated in September to 5.4% from 4.8% in August, bringing it back into the top of the Sarb’s 3% to 6% target range. The reading for October, to be released this Wednesday, is expected to be similar, and the Sarb wants to anchor inflation expectations closer to the mid-point of its range.

SA Reserve Bank Governor Lesetja Kganyago has made it gin-clear that he wants to rein in inflation, so monetary policy won’t be loosened until CPI trends considerably lower.

Price pressures remain in the pipeline: the Opec+ group of oil-producing nations plans further output cuts, while the Israel-Hamas war could also stoke fuel prices higher. Transnet’s meltdown threatens to make many imported goods scarce, which would drive up their prices. And who knows what the rand will do in the coming months?

High interest rates are an added burden on hard-pressed South African consumers and a drag on economic growth. However, the unfolding collapse of state capacity and policy inertia are far bigger constraints on growth. The SA Reserve Bank is focused on inflation, which makes almost everyone poorer and takes its biggest toll on poor households, and runaway inflation is also an obstacle to growth.

The medicine may sometimes be tough, but the SA Reserve Bank’s diagnosis is clinical and informed. This is one arm of the state that is still functioning. DM