MPC Prediction that interest rate will remain unchanged!

The SARB MPC meeting starts on Tuesday afternoon with the results expected on Thursday afternoon. A week or so ago, the governor created a stir in the market with some remarks she made regarding inflation. She indicated that the bank was quite concerned

While inflation might be a concern to the bank it is not more so now than any other time. It was proper for the governor to continue to put out the message that inflation matters a lot to the bank because it causes more economic misery particularly to poor people than higher interest rates would. However, inflation is forecast to come back within target by the second half of the year so there’s no need to change the monetary policy stance.

The bank’s primary mandate is inflation targeting they would not pursue that at the expense of growth and employment. Raising interest rates now or in the coming months would put the fragile growth prospects at risk. Consumer spending will not be sustained at 2011 levels as disposable income will slowdown alongside lower economic growth. Debt levels for consumers are coming down but slowly, so higher interest rates would not put more pressure on them: both the high inflation rate and the potentially higher interest rates would erode disposable income and leave little discretionary income to spend. That would not be good for economic growth as household consumption expenditure forms a substantial part of GDP.

My view is that interest rate will remain unchanged on Thursday and I’m also not looking for a change in interest rates this year.