JOHANNESBURG: South Africa's Reserve Bank is expected to raise interest rates in November in its fight to lower inflation, despite much weaker economic growth, a Reuters poll found, running against a global tide of central banks that are mostly easing policy.
With inflation running at 6.3 percent and not expected to ease off any time soon, the poll of economists taken this week suggests the central bank will stick to its guns and deliver a 25 basis-point hike to 7.25 percent in November.
The bank has hiked rates 200 basis points in the last 2-1/2 years as it focuses on keeping inflation in its 3-6 percent comfort range even as economic growth lags well below its previous levels and lower than most of its peers.
But it has not been successful in reining price rises in, partly due to factors beyond its control such as state price rises and outbreaks of drought.
"We think there is scope for at least one more 25 basis-points rate hike this year," said Jeffrey Schultz, economist at BNP Paribas. September and November are the last two meetings of the year for the Monetary Policy Committee.
Most major central banks are still unleashing stimulus to boost their economies, with the exception of the US Federal Reserve, which is forecast to deliver its next interest rate rise in December.
The latest Reuters poll suggests South Africa's Reserve Bank is nowhere near ready to ease, with only three of 24 economists surveyed forecasting a cut next year.
A majority of 18 said the central bank has not been overly hawkish on inflation in its current cycle and that it should continue to set policy for overall inflation and not focus just on price pressures driven by domestic demand.
"Factors which have often driven inflation higher pertain to cost-push price pressures, for example in higher administered prices," said Colen Garrow, economist at Lefika Securities. "But having said that, the committee has done a sterling job in preserving its inflation-fighting credentials, and done what the mandate otherwise requires it to do," he said.
Inflation is expected to average 6.5 percent this year and 6.0 percent next year, a slight improvement from last month when expectations were 0.1 percentage point higher for both years. But analysts also cut their growth expectations for this year and next by 0.1 percentage point each on average, expecting expansions of 0.2 percent and 1.1 percent, respectively.
"Put simply, it is very difficult to see any sources of stronger growth," said Peter Attard Montalto, emerging market economist at Nomura.
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