South Africa's central bank is set to keep interest rates on hold as it continues to fight inflation amid political uncertainty, a day after the country's bitterest election in three decades.
Economists surveyed by Bloomberg expect Governor Lesetja Kganyago's Monetary Policy Committee (MPC) to leave interest rates unchanged at a 15-year high of 8.25% after 3pm on Thursday. In a separate survey, most respondents expected the decision, which comes a day after the election, to be unanimous.
Nedbank chief economist Nicky Weimer said the hurdle for cutting interest rates had not yet been cleared.
“Despite the positive April inflation report, the rate of deflation remains very slow and it is too early to observe a strong downward trend towards the SA Reserve Bank's 4.5% target,” Weimar said.
Inflation fell for a second straight month to 5.2% in April but remains above the midpoint of the central bank's target range of 3% to 6%. Governor Kganyago, who was reappointed for a third five-year term in March, has repeatedly said policy will not be adjusted until inflation slows and stabilises to the midpoint.
Still, some economists have suggested that while the election will not affect Thursday's interest rate decision, it could have an impact in the future if the outcome is positive for South Africa's currency.
The rand has risen 3 percent since the MPC last met, buoyed by expectations that the next government will remain led by the ruling African National Congress (ANC) and continue on its pro-market path, even if it has to form a coalition with smaller rivals.
Pre-election polls showed that support for the ANC had fallen below 50% for the first time since it came to power in 1994.
“The strengthening of the rand due to the post-election rally in South African asset prices, if sustained, could have enough of an impact on the inflation outlook to allow for an early easing,” said Razia Khan, chief economist at Standard Chartered Bank.
“Our base case is that the Fed will drop its assessment of rising inflation risks and begin cutting rates in the third quarter,” said Andrew Matheny, an economist at Goldman Sachs in New York, who predicts the Fed will keep rates steady on Thursday.