What to expect from South Africa’s interest rate hike this week

The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) is expected to raise interest rates on Thursday September 22 this week in a bid to support the rand and control inflationary forces, but economists have divergent expectations on the amount.

A recent survey conducted by the international comparison site Searcher revealed that half of economists surveyed (50%) expect a 50 basis point (bp) hike at the September meeting.

A further 44% expect it to increase by up to 75 basis points, and only one respondent expects an increase of 25 basis points.

While everyone expects varying degrees of action from the SARB, the majority believe the increase should only be 50 basis points.

Economists interviewed in the survey included experts from the Bureau of Economic Research, Standard Bank, Old Mutual, Wits Business School, Investec and more.

Jee-A van der Linde, an economist at Oxford Economic Africa, said she expects a 50 basis point hike due to high inflation which peaked in July and rose to 7.8% year-on-year.

Van der Linde said the SARB may want to see further evidence that the peak is in fact behind us. Elna Moolman, head of macroeconomic research at Standard Bank, added that 50 basis points should be enough.

She noted, however, that with higher headline and underlying inflation, alongside wage increases, the SARB would be reluctant to slow its rate hikes.

Global financial services, BNP Paribas, differ in their expectations, saying the SARB is likely to keep its foot firmly on the pedal with broad price pressures favoring a 75bps.

A 75 basis point hike would bring the repo rate back to pre-Covid levels, he said. However, this may still be insufficient given South Africa’s inflationary outlook.

“The most important reason why we see no room for SARB complacency at this time is that we only expect a slow return to its inflation target in the second half of 2024,” he said. he declares.

“Judging by SARB Governor Lesetja Kganyago’s recent comments that it’s ‘too early to call peak inflation’, the bank is worried – and rightly so, in our view – about the Upside risks to the inflation outlook materialize, despite the slowdown in global oil and food prices.”

South Africa’s consumer inflation figures for August are due on Wednesday September 21, a day before the MPC makes its final decision, and economists expect the figure to be slightly lower than in before.

The Bureau of Economic Research (BER) expects the SARB to follow the trend set by other central banks – including a recent 75 basis point hike by the European Central Bank and an expected 75 basis point hike by basis by the US Fed later this week.

While he expects South Africa’s annual headline CPI inflation rate to moderate to 7.3% due to lower fuel prices which took effect earlier this month , he thinks the interest rate will be raised by 75 basis points, adding that it would not be surprising if a member votes for 100bps.

BNP Paribas argues that due to possible upside risk, its call for 75 basis points is biased towards a more hawkish statement: “Markets are pricing in more than 150 basis points of upside ahead of the year.”

The banking group expects further hikes in November 2022 and January 2023 of 50 basis points and 25 basis points, respectively.


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