South Africa’s central bank will likely keep the benchmark interest rate unchanged and lower its economic growth forecast on Thursday as the country is reeling from a third wave of Covid-19 restrictions and after deadly riots.
As output rose more than expected in the three months to March and data, including the composite leading business cycle indicator, suggests gross domestic product accelerating in the second quarter, the unrest has erupted in South Africa last week pose a major risk to the outlook for 2021.
The looting and arson, and the reintroduction of a strict lockdown are likely to push policymakers to lower their 4.2% expansion projection for this year and could push back their prediction that production will return to levels d. ‘before the pandemic in 2023.
Economists, including Michael Kafe of Barclays Bank Plc, see riot damage slash GDP growth by one percentage point in 2021.
This could see the monetary policy committee delaying the start of an interest rate hiking cycle. Since late last year, the panel has signaled that its next move will be up and the last time any of its five members voted for easing was in January.
The central bank’s quarterly projection model, which the committee uses as a guide, in May indicated a 25 basis point hike in the second quarter and another in the fourth. The MPC has already deviated from the framework by leaving the benchmark unchanged at its last meeting and consumer price growth which remains near the 4.5% midpoint of its target range shows that it has still room to support the economy.
Data released on Wednesday suggests inflation has peaked and the spread between the rate of price growth and the key interest rate will narrow in the coming months, said Kim Silberman, income analyst. fixed and foreign exchange at the Rand Merchant Bank of FirstRand Group Ltd. in a note sent by email.
The real interest rate will rise to -1% over the next three quarters, following a low of -1.7% in May, without the central bank having to increase borrowing costs, he said. she declared. This could help make local assets more attractive to foreign investors.
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