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Economists Anticipate Further Interest Rate Hike Next Week Amid Rising Inflation

Published by
WIlliam Dube

Economists at Nedbank predict another interest rate hike in South Africa following a recent uptick in headline inflation. According to the finance group, the decision to raise rates has already been sealed, and a 25-basis-point hike is all but guaranteed in March. The South African Reserve Bank Monetary Policy Committee (MPC) is scheduled to meet next week to discuss the path forward for interest rates in the country, and Governor Lesetja Kganyago is expected to make an announcement on Thursday, March 30.

  1. Economists at Nedbank predict another interest rate hike in South Africa following a recent uptick in headline inflation.
  2. The increase in inflation is largely driven by food and non-alcoholic beverages, with inflation climbing to 13.6% from 13.4% in January.
  3. Despite the optimistic outlook, risks to the inflation outlook remain to the upside due to rising input costs, unpredictable weather patterns, and a vulnerable rand.

South Africa has been on a hike cycle since November 2021, with interest rates rising by a cumulative 375 basis points over the period. The prime lending rate currently stands at 10.75%, and a 25 basis point hike would take it up to 11.00%.

Rising Inflation

Nedbank’s prediction of another interest rate hike is based on inflation figures published by Stats SA on Wednesday, March 22. The data showed a slight uptick in prices in February 2023, with headline inflation growing from 6.9% in January to 7.0% in March. Core inflation saw a bigger jump, rising from 4.9% to 5.2%.

The increase in inflation was largely driven by food and non-alcoholic beverages, with inflation climbing to 13.6% from 13.4% in January. This is the highest level since 2009. According to Nedbank, “food prices were to blame, jumping to 14% year on year.” Within the food category, upward pressure came from ‘milk, eggs and cheese’, ‘vegetables’, ‘fruits’, ‘sugar, sweets and deserts’ and meat, which recorded double-digit price accelerations. Prices of bread and cereals and oils and fats also remained elevated, but the rates slowed down slightly.

Core Inflation Concerns

Nedbank also expressed concern over core inflation, which came in higher than expected at 5.2%, the highest since February 2017. Despite the rise in inflation, the finance group believes prices are likely to stabilize throughout 2023. This would allow the South African Reserve Bank to cut rates at the end of the year.

Nedbank says, “Most of drag will stem from fuel prices, which will benefit from lower Brent crude prices, which will be dragged down by slower global demand, particularly consumer spending in the major economies.” It added that “food inflation remains sticky but is probably near its peak and should also begin trending down during the second quarter, reflecting the lagged effect of the moderation in global food prices and favorable weather conditions.”

Risks to the Inflation Outlook

Despite the optimistic outlook, risks to the inflation outlook remain to the upside due to rising input costs, unpredictable weather patterns, and a vulnerable rand. The rand remains under pressure from volatile global risk sentiment, while domestic factors such as power shortages and political noises ahead of the elections next year could weigh negatively on the local currency.

Looking Ahead

Nedbank predicts that the first rate cut in the cycle will come at the November meeting. While inflation risks remain considerable, the finance group expects inflation to dip below 5% by the end of the year as the economy slows down to a crawl.

The South African Reserve Bank will announce its decision on interest rates on Thursday, March 30, following the MPC meeting. Many will be watching closely to see how the central bank responds to rising inflation and the potential impact on the country’s economy.

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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