Economists expect the Reserve Bank to keep the repo rate unchanged at 6.5% this week. But it’s likely the Reserve Bank will emphasise that the risk to the outlook has worsened.
The risks to the inflation outlook have shifted further on the upside compared to the last monetary Policy Committee meeting two months ago.
The rand vulnerability, global trade tensions, the tighter global monetary conditions and current oil prices are adding to the upside risks to inflation.
South Africans have had to endure an escalating cost of living, resulting from amongst others, the weak rand, the 15% VAT rate and increasing fuel prices.
The agricultural sector has however done better than expected following the drought spell, going a long way countering the pressures on inflation.
Inflation is expected to continue on an upward trajectory, but should main within the Reserve Bank’s 3-6% target bracket.
On a trade weighted basis the rand has depreciated.
Analysts say with inflationary pressures on the rise, South Africans should expect an interest rate hike sooner rather than later. This would add to the pressures consumers are already faced with.
Economist Maura Feddersen believes the Reserve Bank will likely revise downwards expectations for growth in 2018.
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