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Cape Town – The SA Reserve Bank’s Monetary Policy Committee (MPC) is likely to hold the repo interest rate at 6.75% at its next meeting on November 23 and adopt a hawkish stance, according to Carlos Teixeira of Credit Suisse.

In a statement Teixeira pointed out that, since the MPC’s last meeting on 23 September, the rand has weakened sharply, international oil prices have surged and domestic agricultural prices have risen.

He noted that the probability of a significant hike in electricity tariffs for 2018 has increased, SA’s fiscal policy has become more expansionary and the looming risk of credit downgrades to sub-investment grade has escalated.

At the same time, gross domestic product (GDP) growth in third quarter looks likely to have been stronger than generally expected.

Teixeira argued that SARB is likely to raise its forecasts for CPI inflation notably and for real GDP growth moderately. Credit Suisse expects CPI inflation will end 2017 at 5.1%, and reach 5.4% at the end of 2018.

Its forecast average for each respective year is 5.3% and 5.4%. Teixeira said potential risks to these baseline forecasts would likely come from ratings agencies Moody’s and Standard & Poor’s both publishing their year-end credit reviews on November 24, the result of the ANC elective conference, the National Energy Regulator’s decision on electricity tariff hikes for Eskom for the 2018/2019 financial year, and SA’s main 2018 budget. 

In his view, a steady repo interest rate was probably the best economic policy for SA in 2018. 

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