Is SA on the verge of a sovereign debt crisis?

The South African Reserve Bank’s Monetary Policy Committee (MPC) is set to keep interest rates at record lows when it it meets this week.

This is according to Finder’s repo rate forecast report, which polled 25 economists who voted unanimously in favour of yet another hold at 3,5 percent.

Nedbank chief economist Nicola Weimar believes the bank has achieved the ‘Goldilocks’ of monetary policy and it is now a matter of waiting for previously-set policies to take effect.

“Hiking now would not make sense since inflation is well contained and the economy is still operating well below potential. Cutting would also not be wise as the SARB has already done enough, the actual rate is below the neutral rate.

“So Monetary Policy is stimulatory enough. It is now just a case of waiting for the policy to impact on the economy – become a stimulus rather than a cushion against tough times.”

While the majority of panellists (88 percent) think the bank will and should hold the rate, a small minority (12 percent) believe that the committee should cut rates.

IQBusiness chief economist Sifiso Skenjana called for a 25 basis points cut.

“While we are reporting a better than expected revenue shortfall, the contribution was largely on the back of a mining earnings growth and not a stabilising economic growth context.

The declining corporate income tax base is a clear sign of the economic pressure points and relief through an interest rate decrease is needed at this point in time,” he said.

However, a rate increase might not be too far off, with 28 percent expecting to see a rate hike in 2021 and over half (56 percent) forecasting that the rate will increase next year.

Stellenbosch University chief operating officer Stan du Plessis said South Africa could depart from the low repo rate regime as soon as the tail end of 2021.

“I expect the economy to recover sufficiently by the second half of the year to require an exit from the abnormally low repo rate level.

“The expected rise in long term bond yields will add to the pressure on the short term of the curve,” he said.

A small minority of panellists (16 percent), including Department of Economics and Finance, University of the Free State senior researcher Dr Johan Coetzee, do not expect the rate to increase until at least 2023.

“The SARB has to ensure that it continues to support the poor economic environment facing South Africa. Lower interest rates will be part of the macroeconomic policy mix for a time yet,” he said.

Is South Africa on the verge of a sovereign debt crisis? South Africa is at some level of risk of a sovereign debt crisis, according to the overwhelming majority (92 percent) of panellists.

Over a third (36 percent) say the risk is high and two in five (40 percent) believe the risk is moderate.

A small minority (16 percent) said there is a small risk while just 8 percent believe there is no risk of this occurring.

Antswisa Transaction Advisory Services CEO and chief economist Miyelani Mkhabela believes there’s a high risk of a debt crisis, noting the situation will only worsen as the Covid-19 pandemic continues. — BusinessTech.