THE Reserve Bank is expected to keep lending rates on hold when the bank’s monetary policy committee (MPC) meets from tomorrow to Thursday.

Consensus forecasts are for the repo rate to be kept unchanged at 5.0%. Of 12 economists surveyed by Business Day, only two expected a 50-basis-point reduction in rates.

Credit Guarantee senior economist Luke Doig is one of them. "Given that we are entering a period of sluggish growth and lacklustre employment growth, I would expect the Bank to be more proactive," Mr Doig said.

In its assessment of economic developments, the committee is widely expected to note its continued concern over the global economic slowdown and rising international food prices.

Work stoppages in the domestic mining sector due to continuing wage strikes, and a large deficit on the current account, are expected to be part of discussions at the committee’s meeting. The current account deficit widened to 6.4% of gross domestic product in the second quarter from a deficit of 4.9% the previous quarter.

Emerging market economist at Nomura International Peter Attard Montalto said the committee would not be too worried about the current account deficit as this was "fundamentally backward looking" and would probably decline from now as the domestic economy slowed. Mr Attard Montalto expected a 50-basis-point rate cut only in the committee’s November meeting (November 20-22).

Inflation figures due on Wednesday will also be closely monitored by the committee. The figures are particularly important because if inflation remains contained within the Bank’s 3%-to-6% target band, the Bank has more space to keep interest rates at current 40-year lows for longer, or even cut them if the lower inflation happens simultaneously with a deterioration in the global economy. The consumer price index (CPI) is forecast to tick up slightly to 5.0% year on year for last month from the 4.9% year on year recorded in July.

KADD Capital economist Elize Kruger sees CPI rising 0.3% during the month, mainly due to a 22c/l increase in the petrol price combined with possible upward pressure from food prices.

Statistics SA will release the July retail trade sales on Wednesday. Retail trade sales have recorded higher levels of growth in recent months. A consumer economist at Liberty, Tendani Mantshimuli, attributed this growth partly to consumers financing retail activity through credit in the form of unsecured loans, which she suggested was unsustainable.

"Retail sales have been growing faster than anticipated but the trend will be downward overall later in the year. We’re going to start seeing that slowdown in the upcoming numbers," she said.

"That avenue of growing retail sales through unsecured loans will not be open for much longer to sustain retail expenditure."

The FNB-Bureau for Economic Research’s third-quarter consumer confidence index is due tomorrow. The index fell sharply to its lowest level since the end of 2008 at -3 index points in the second quarter, from five points in the first quarter. Meganomics economist Colen Garrow said he did not expect the index to improve.