Tendani Mantshimuli provides predictions on interest rates before MPC announcement on Thursday

The Reserve Bank’s Monetary Policy Committee (MPC) is meeting this week and will make an announcement regarding interest rates on Thursday 22 September. Tendani Mantshimuli, Consumer Economist at Liberty says, “I am not looking for a change in interest rates on Thursday. I expect the MPC to keep rates unchanged with the repo rate remaining at 5.5% and the prime overdraft rate at 9.00%. If there were to be any movement it would be a cut in rates given the current economic conditions but I still expect an unchanged stance from the MPC.”

“The outlook for consumers, like that of the rest of the economy, has deteriorated since the last MPC meeting. Gross Domestic Product (GDP) has weakened in second quarter (Q2) and early indicators point to further weakness in the coming months.”

Ms. Mantshimuli says, “Manufacturing output is set to deteriorate further which is not surprising given the weakness of global demand for our exports. This was reflected in the deterioration of the current account deficit.”

“Domestic demand is not supportive of manufactured goods as spending trends are heading downward. If no material change occurs in employment prospects it's difficult to see what will support consumption expenditure going forward,” she adds.

Ms Mantshimuli’s outlook is that growth in household wealth is trending down which is a challenge for the financing of expenditure; credit demand is also not growing fast as a result of stricter lending conditions as well caution from the household sector. She says that evidence of this was seen in the slowdown in household debt as percentage of disposable income.

“All this points to a slight increase in the output gap which will help mitigate inflationary pressures from higher commodity prices and higher domestic wages and administered prices. This means that the MPC can keep rates unchanged for longer without risking higher inflation. Low interest rates mean lower cost of servicing household debt; consumers would need to continue taking advantage of this and paying off their debts. It would furthermore help if businesses could borrow at these low rates and increase investment expenditure from the improved performance in Q2 as this would assist GDP growth and employment going forward,” she concludes.