The Sarb may not want to trim rates prematurely - economist

The monetary policy committee is meeting on Thursday to decide whether to keep interest rates unchanged or cut them.

Dr Goolam Balim, Standard Bank Economist says he's hesitant to believe the Reserve Bank will trim the interests rates.

Ordinarily, if one considers the inflation pass, at least for the next two years, remains locked within the 3% to 6% target zone and secondly the economy is weak. Those two suggestions would imply that the Reserve Bank must cut interest rates.

Dr Goolam Balim, Standard Bank Economist

However, the one retarding factor, quite simply, we are functioning in an incredibly precarious political environment.

Dr Goolam Balim, Standard Bank Economist

Balim goes on to say that the Public Protector's suggestion that the Sarb needed to re frame its mandate, precipitated a noticeable depreciation in the rand.

The Sarb may not want to trim rates prematurely adds Goolam.

The South African economy does display a real, positive interest rate.

Dr Goolam Balim, Standard Bank Economist

Balim explains that when an economy is this fragile then a reserve bank would want to maintain positive real rates because these rates entice foreign investment into the local deposit market.

They could trim rates if inflation continues to fall because we'll still maintain some margin of real rates which may open up a segway to believe that a maybe a modest 25 basis point rates cut will on the cards says Balim.

That would the desired outcome and will carry some degree of hope, he concludes.

Take a listen:


This article first appeared on 702 : The Sarb may not want to trim rates prematurely - economist


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