JOHANNESBURG May 16 South Africa's central bank
governor Lesetja Kganyago said on Tuesday that raising lending
rates would do little to attract new investments to the country
after its credit rating was downgraded to junk.
Kganyago, due to announce his first rates decision since S&P
Global Ratings and Fitch cut South Africa's credit score to
sub-investment grade in April, told online publication The
Conversation that the Reserve Bank (SARB) would stick to
targeting inflation of 3 to 6 percent.
"Raising the repo rate by itself would do little to attract
new investments," Kganyago was quoted as saying.
"But failure to deal with the inflationary consequences of
currency depreciation, which pushes up import prices and
potentially all prices, would also push up both short and long
term borrowing costs," Kganyago said.
The currency plunged more than 12 percent in the wake of
President Jacob Zuma's decision in late March to recall Pravin
Gordhan from meetings with investors overseas and then fire him
as finance minister a week later.
Price growth in March slowed to 6.1 percent. Statistics
South Africa publishes April CPI on May 24, with a Reuters poll
forecasting inflation at 5.6 percent.
In March the bank kept rates unchanged for an eighth straight
meeting, saying it had reached the end of its tightening cycle,
which has seen it raise rates a total of 200 basis points (bps)
But following the cabinet reshuffle and downgrades Kganyago
said pressure on the rand, and accelerated inflation as
inventors sold off local assets, could force the regulator to
put off cutting rates.
The bank's policy committee meets for three days starting
next Monday and is due to announce its rates decision on
Forward markets rates on Tuesday were pricing in a zero
percent chance of a hike next week and a 9 percent probability
of a 25 basis point cut. For meetings in July and September,
markets see a 21 percent and 50 percent probability of a 25 bps
Michelle Wohlberg, fixed income specialist at Rand Merchant
Bank, said a rate move in either direction would be "pulling the
trigger too quickly", with the bank likely to consider cutting
once South Africa's credit rating path was clear.
"They're waiting for things to settle down and for Moody's
to come out with their rating report. And once CPI prints
in-line they'll start thinking about cutting," Wohlberg said
Moody's, which put the country on review for a downgrade
after the cabinet reshuffle, is due to meet local investors and
policy makers this month.
(Reporting by Mfuneko Toyana; Editing by Mark Trevelyan)