‘Next interest rate increase likely in May’

The SA Reserve Bank will not raise interest rates again until May, according to a poll taken after the central bank surprised many economists last month by adding 25 basis points to borrowing costs.

The median forecast in the Reuters poll of 25 economists, conducted over the past week, suggests the central bank will wait until May before hiking interest rates by another 25 basis points, taking its key rate to 7%.

The Reserve Bank increased its benchmark lending rate for the first time in nearly three years in November, with governor Lesetja Kganyago saying the risk of higher inflation in the longer term remains elevated and that it could not risk waiting until later to take action.

“Risks to the inflation outlook remain to the upside, on possible rand depreciation and above-inflationary increases in administered prices, particularly electricity tariffs,” Investec economist Kamilla Kaplan wrote in a note.

She pointed out that debttroubled Eskom proposes to increase electricity tariffs by 15% a year for the next three years.

The poll predicted inflation would quicken to 5.3% in 2019 from 4.7% in 2018.

A separate poll last week suggested the rand would erase about a third of the 10% gains it made in the past two months in the run-up to elections next May as strong volatility rattles the currency, adding to inflationary pressures.

However, the Reserve Bank reacts more strongly to any signs of second-round effects on its inflation outlook rather than to currency weakness.

Another poll showed that analysts are increasingly pessimistic about the prospect of an oil price rally next year, especially with oil cartel Opec cutting output.

Brent crude prices eventually affect SA inflation, from factories through to consumers.

The economy is expected to expand 1.5% in 2019 from 0.7% in 2018. It expanded 2.2% in the third quarter, taking SA out of recession.