The South African Reserve Bank (SARB) is facing a difficult decision ahead of its interest rate announcement on Thursday, as economic pressures continue to mount.
Oil prices have risen above 100 US dollars per barrel, the rand has weakened toward R17 against the dollar and global bond yields remain high.
Economists have warned that cutting interest rates under these conditions could weaken the bank’s credibility in managing inflation.
Independent economist John Loos says maintaining current rates may be the safest approach.
“Everybody knows that by April, CPI inflation will in all probability be noticeably higher. So if you were to cut, you start to send a signal to the market as well, we’re going to focus on growth instead of inflation. And the markets do want price stability. Price stability in a country is a very important thing,” says Loos.
He adds, “Price instability in the longer run can even create heightened social unrest. So it’s important for the Reserve Bank to, for the longer term economic performance, credibility, investor confidence, to be seen to be focused on inflation.”
The Reserve Bank’s decision is expected to balance inflation concerns with the need to support economic growth.
All eyes on SARB as rate decision looms amid rising global uncertainty
