The South African Reserve Bank (SARB) may implement additional rate hikes in the coming months, as the central bank’s Monetary Policy Committee (MPC) takes a hawkish stance on interest rates due to rising inflation and other economic concerns. On 30 March, the MPC surprised the market by raising interest rates by 50 basis points, while many analysts expected a 25 basis point increase.
SARB Governor Lesetja Kganyago acknowledged the difficulty in determining the top of the current rate hike cycle, stating that the MPC considers numerous factors simultaneously, including the impact of load shedding on the South African economy. Given the persisting uncertainties, Kganyago explained that the MPC’s decisions will remain data-dependent and sensitive to the balance of risks in the outlook.
Economists and analysts interpret the SARB’s hawkish stance as a signal for more rate hikes in the future. Sanisha Packirisamy, Economist at Momentum Investments, believes that the interest rate hike cycle could end this year if disinflation trends persist, allowing inflation to return to the target midpoint by the end of next year. However, she also noted that a 25 basis point hike might be on the cards in May if the SARB perceives intensified inflation risks.
Angelika Goliger, EY Africa Chief Economist, shared a similar perspective, stating that another 25 basis point hike this year is possible due to uncertainties surrounding the rand, higher risk premia, load shedding, and persistent food and fuel inflation.
Prof. Andre Roux, Economist at Stellenbosch Business School, highlighted the potential for either a hold or another hike during the Reserve Bank’s next meeting in May. He argued that with the South African economy on the verge of a technical recession, high unemployment, and growing inflationary pressures, some leniency might be justified. However, he also acknowledged the possibility of a rate increase in May, followed by a sideways movement until late 2023 or early 2024, when rates could begin to decrease.
Momentum Investments predicts that interest rate cuts are likely some way off due to persistent inflation risks, global interest rate normalization, and higher long-dated local inflation expectations. Carmen Nel, Economist and Macro Strategist at Matrix Fund Managers, also anticipates a cautious approach from the SARB, with a reluctance to cut rates early or aggressively.
Adriaan Pask, CIO at PSG Wealth, advised investors to brace for heightened volatility in the coming months as markets remain sensitive to developments in interest rates, inflation, unemployment, and wages. The MPC is scheduled to meet next on 25 May 2023.
Key Takeaways from the South African Reserve Bank’s Rate Hike Decision
|SARB’s recent interest rate increase
|50 basis points (surprising the market)
|Expected interest rate increase
|25 basis points
|SARB’s future stance
|Potential rate hike in May
|25 basis points (if inflation risks intensify)
|Timing for end of interest rate hike cycle
|This year (if disinflation continues and inflation reaches target midpoint by end of next year)
|Forecast for rate cuts
|Delayed due to persistent inflation risks, global interest rate normalization, and local expectations
|Next MPC meeting
|25 May 2023
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