PwC expects a hold on MPC rates today, here’s why
Economists are divided in their expectations of the MPC rate decision taking place today. Some are suggesting a rate hold as it’s close to the bottom of the cycle, and others expecting a 25 basis point cut which would make it the lowest interest rate point in decades. PwC expects no change in the rates this afternoon and joining CNBC Africa for more is Christie Viljoen, Economist at PwC.
Thu, 23 Jul 2020 10:43:43 GMT
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AI Generated Summary
- Reserve Bank likely to keep interest rates unchanged despite calls for cuts due to outstanding economic indicators and delayed impact of rate cuts caused by lockdown measures
- Room for further rate cuts throughout the year, with consensus that economy has not yet bottomed out, but sustainable growth requires structural changes beyond monetary policy measures
- Expectations for revised growth forecasts by the Reserve Bank amid conservative projections, focus on economic growth outlook and potential impact on fiscal policy decisions
The South African Reserve Bank is facing a critical decision today as economists are divided on whether there will be a change in the Monetary Policy Committee (MPC) rates. While most experts are predicting a 25 basis point cut, some are even more optimistic, forecasting a 50 basis point reduction. However, PwC Economist Christie Viljoen believes that the Reserve Bank will likely maintain the status quo and keep interest rates unchanged. Viljoen points out that despite some recent economic data, major indicators such as GDP and employment figures for the second quarter are still outstanding. The impact of the lockdown on the economy has been significant, with people staying at home more often and reducing their spending. The Reserve Bank is likely waiting to assess the full effects of the rate cuts before making a decision. Looking ahead, Viljoen agrees that there is room for further rate cuts throughout the year. The Reserve Bank has indicated that it could lower rates by another 0.5 percentage points. While there is consensus that the economy has not yet reached the bottom, there is also recognition that cutting rates indefinitely is not a sustainable solution. The Reserve Bank's primary goal is not to stimulate economic growth, but rather to provide relief to businesses and consumers by easing debt payments. Viljoen emphasizes that structural challenges need to be addressed by the government to support long-term growth. In terms of fiscal developments, the National Treasury has secured an additional $5 billion from the African Development Bank, with potential lending from the IMF on the horizon. Viljoen suggests that the Reserve Bank is likely to revise its growth forecasts, which currently stand at a 7% contraction. PwC's estimates and those of other analysts indicate a deeper recession of around 10%. While inflation remains low and below the target range, the focus today will be on the Reserve Bank's assessment of economic growth for this year and the next.
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