By Nazmeera Moola, economist and strategist, Investec Asset Management

Consumers should be able to sleep somewhat easier in the next few months, as we have most likely seen the last interest rate hikes for 2014. This is partially due to the weak economic outlook.

We expect the South African Reserve Bank (SARB) to keep rates on hold this Thursday, mainly due to a significant change in the inflation outlook. At the previous monetary policy committee (MPC) meeting in July, risks to the inflation outlook were firmly on the upside and the SARB expected the peak in the quarterly average for inflation to be in the fourth quarter of 2014.

A lot has changed for inflation in two months

It has only been two months since the previous MPC meeting, but inflation risks are now firmly on the downside – barring any major rand weakness. Recent data suggests that the peak in the consumer price index (CPI) will have shifted to the second quarter of this year. This is due to a relatively stable rand and lower commodity prices for food and energy.

The oil price has been a mystery: despite growing tensions in Ukraine and the threat posed by ISIS, the oil price has fallen in the last two months. With Brent crude oil plunging below US$90/barrel, consumers can expect a lower petrol price in the coming month.

Food commodity prices have been falling due to strong harvests locally and internationally. Additionally, the pass-through from the weaker rand into generalised inflation has been low, primarily due to weak domestic demand, increased competition among retailers and the changing weights in the CPI basket.

All of these factors suggest that the SARB will probably be more optimistic about the inflation outlook than they were two months ago.

Growth outlook looks even worse than in July

Added to this, South Africa’s growth picture has deteriorated since the last MPC meeting and this is again likely to play heavily on the minds of the committee members. If one averages the 0.6% GDP growth of the second quarter with the contraction of 0.6% in the first quarter, it is not at all comforting to know that South Africa had zero growth in the first half of the year.

Although the mining and manufacturing strikes have been settled, we still expect rather poor economic growth of 1.3% to 1.5% for 2014. The risk of a major public-sector wage strike should also be factored in, as these negotiations are underway and the government has no room to indulge union demands.

Therefore, we expect interest rates to be kept on hold at next week’s MPC meeting. At this point, growth concerns and risks to the inflation outlook are of such a nature that the SARB may just be able to wait until 2015 before they pre-emptively hike rates to act as a buffer ahead of next year’s US rate hikes.