South African Reserve Bank’s monetary policy committee (MPC) is expected to announce the first interest rate decision of the year on Thursday.
According to economic analysts in the country, the outcome is likely to be a 50 basis-point hike.
Citing inflation, the bank’s governor Lesetja Kganyago said that the inflation outlook had deteriorated due to a sharp fall in the rand coupled with the intensification of the drought.
Since November maize prices have surged 71% and the rand has weakened by 18% against the dollar, following the abrupt removal of finance minister Nhlanhla Nene by President Jacob Zuma in early December.
This leaves the bank facing a policy dilemma of rising inflation and slow economic growth.
Consumer price inflation accelerated from 4.8% year-on-year in November to 5.2% in December. The main culprit was food price inflation which increased from 4.8% to 5.9%.
Investors are expected to scrutinise the bank’s growth and inflation outlook in Thursday’s statement for pointers on the interest rate trajectory for the rest of the year.
South Africa’s economic growth looks bleak with the IMF cutting its forecast for GDP growth from 1.3% to 0.7% in 2016.