Economic News

South Africa Braces for Key Interest Rate Hike Amid Inflation Fears

Published by
WIlliam Dube

As the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) convenes for its meeting this week, economists and analysts anticipate another interest rate hike. A panel of 22 experts, including economists, property specialists, and academics, concur that a rate increase is imminent, with most expecting a hike of 25 basis points (bps) when Reserve Bank Governor Lesetja Kganyago announces the decision on Thursday, 30 March.

  1. Economists and analysts predict an interest rate hike in South Africa this week, with most expecting a 25 bps increase when the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) announces its decision on Thursday, 30 March.
  2. The rate hike predictions are driven by concerns over inflation, as recent data from Stats SA shows headline inflation at 7% and core inflation at 5.2%, causing experts to call for SARB’s intervention to bring inflation towards its preferred 4.5% midpoint target.
  3. The panel of experts is divided on the future trajectory of South Africa’s interest rates, with some anticipating an end to the current rate hike cycle by the end of the year, while others foresee at least one more hike at the central bank’s May meeting.

This would raise the repo rate to 7.5% and the prime lending rate to 11.0%. A few experts, however, believe the central bank may hike rates by 50 bps. The panel attributes the rate hike predictions to inflation, as recent data published by Stats SA shows a slight increase in headline inflation to 7% (up from 6.9% in January), with core inflation accelerating to 5.2% (from 4.9%).

BNP Paribas Chief Economist Jeff Schultz argues that high and persistent inflation necessitates further action from the SARB to bring inflation sustainably towards its preferred 4.5% midpoint target. Old Mutual Wealth Strategist Izak Odendaal agrees with a 25 bps hike, citing global factors such as the US Federal Reserve’s response to persistent inflationary pressures and labor market imbalances. However, Odendaal believes that the rate should hold, as domestic inflation pressures stem mainly from supply-related issues.

In contrast, Wits Business School Visiting Professor Jannie Rossouw advocates for a larger 50 bps hike to contain inflation expectations and reduce domestic inflation to the midpoint target range. The Bureau for Economic Research (BER) highlights that the MPC may take a cautious approach towards further rate hikes due to the dampening impact on global growth from the likely tightening in US and European bank lending standards. Nevertheless, given the volatile domestic market, including a weakening trend for the rand exchange rate since the end of January MPC meeting and upward surprises in January and February headline CPI, the panel predicts a 25 bps hike is likely.

This would push the policy rate to 7.5%, 50 bps above the SARB’s estimate of the neutral policy rate. However, opinions diverge regarding the future of South Africa’s interest rates. Two-thirds of the panel foresee the SARB halting rate hikes by the end of the year, concluding the current interest rate hike cycle that commenced in November 2021. These experts anticipate potential rate cuts during the first half of 2024.

In contrast, the remaining analysts are not convinced the hike cycle has concluded and foresee at least one more hike at the central bank’s May meeting. Efficient Group Chief Economist Dawie Roodt belongs to this group, predicting rate increases for both the March and May meetings. He asserts that smaller increments should suffice, as the CPI and interest rate cycle near their upper limits.

Regarding the rate’s peak, the panel’s forecasts vary. Just over half (55%) of the panelists believe March will mark the peak of this rate cycle, while over a fifth (23%) anticipate it will peak in May. About 18% of the panelists predict the rate will reach its peak sometime in the latter half of 2023 or the first half of 2024. Only PwC South Africa Senior Economist Christie Viljoen believes the rate already peaked in January.

The upcoming interest rate decision carries significant implications for South Africa’s economy. The panel’s varied forecasts reveal the complexities surrounding the nation’s inflation and interest rate trends, as well as the potential impact of global factors on domestic monetary policy decisions. The SARB’s ultimate decision will depend on the MPC’s evaluation of various economic indicators and the balance between managing inflation expectations and supporting economic growth.

As the South African Reserve Bank prepares to announce its decision, market participants and businesses will be closely monitoring the outcome and adjusting their strategies accordingly. The interest rate hike, whether by 25 or 50 bps, will affect borrowing costs, investment decisions, and consumer spending, making it a critical aspect of South Africa’s economic landscape in the coming months.

WIlliam Dube

William Dube is a finance and economic news expert with over 10 years of experience in economic anaylsis, financial product assessment and market analysis. With a numerous certificates from prestigious universities including but not limited to Yale University and the University of Pennyslivenia. William specializes in providing insightful news developments in South Africa and commentary on investment strategies, risk management, and global economic trends. You can contact him on william@rateweb.co.za

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Published by
WIlliam Dube

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