New South African bank notes featuring an image of former South African President Nelson Mandela are displayed at an office in Johannesburg

South Africa's central bank likely to hold rates on March 28

By Vuyani Ndaba

JOHANNESBURG (Reuters) - South Africa's Reserve Bank is expected to leave interest rates unchanged next week, and with a weak currency threatening to stoke inflation, it probably won't cut rates this year, a Reuters poll showed on Wednesday.

Inflation in Africa's most industrialized economy is currently below the Reserve Bank's mid-point of its 3 to 6 percent preference, but the central bank watches consumer prices 12 to 18 months down the line and forecasts are for it to be above that sweet spot.

All 24 economists surveyed in the past week said rates would remain on hold at 6.75 percent on March 28.

"We don't expect the SARB to raise or cut interest rates anytime soon," said Jeffrey Schultz, economist at BNP Paribas.

"A combination of looser fiscal policy, credit ratings downgrade risks and an uncertain outlook for the rand necessitates a relatively cautious stance from the SARB over the medium term."

Only one economist forecast the central bank would cut rates this year, in November. Seven said rates would be raised to 7.00 percent by the end of the year, down from 10 in a February poll.

A Reuters poll earlier this month predicted the rand would hover around current levels in the coming year as investors shrug off credit rating reviews and domestic elections. Moody's is due to announce its review later this month.

The U.S. Federal Reserve has adopted a more patient stance to its monetary policy, wary not to choke its own economy after ramping up rates four times last year, a prospect likely to prevent rand weakness.

Median forecasts suggest rates will be left unchanged this year with only one increase in 2020, in the second quarter, to 7.00 percent.

Inflation is expected to average 4.7 percent this year and 5.3 percent next, while the economy is expected to grow 1.4 percent this year and 1.8 percent in 2020. It grew 0.8 percent last year.

South Africa's economy suffered a recession in the first half of 2018 as farming plunged. Growth has since recovered, albeit slowly, helped by a recovery in agriculture and manufacturing.

2019-03-20 09:30:08

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