What to expect from the rate hike in South Africa this week?


The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) is set to raise interest rates on Thursday (September 22) this week in an effort to support the rand and contain inflationary forces, but economists disagree on how much .

A recent survey conducted by the international comparison website Finder revealed that half of the economists surveyed (50%) at the September meeting expect a 50 basis points (bps) increase.

Another 44% expect it to rise to 75 bps, and only one respondent predicts an increase of 25 bps.

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

Among the economists surveyed in the survey were 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 increase on the back of high inflation that peaked in July, rising to 7.8% yoy.

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

She noted, however, that given higher headline and core inflation, in addition to wage increases, the SARB would be reluctant to delay rate hikes.

Global Financial Services, BNP Paribas, differs in its expectation, stating that SARB is likely to keep its footing firmly on the pedal with broad price pressure favoring a 75bps.

An increase of 75 basis points would return the repo rate to pre-Covid levels, it said. However, this may still be insufficient in light of South Africa’s inflation outlook.

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“The main reason we don’t see room for SARB complacency at this point is that we only expect a slow return to the inflation target in H2 2024,” it said.

Judging by SARB Governor Lesetja Kganyago’s recent comments that it is ‘too early to call the inflation peak’, the bank is apprehensive – and rightly so, in our view – in materializing upside risks to the inflation outlook, despite the slowing global oil and food prices.”

South African consumer inflation data for August is expected Wednesday (September 21), a day before the MPC makes its final decision, and economists expect the figure to be slightly lower than before.

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

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While it expects annual headline CPI inflation in South Africa to moderate to 7.3% as a result of lower fuel prices that took effect at the beginning of the month, it believes interest rates will be hiked by 75 basis points, adding that it’s not surprising if a member votes for 100bps.

BNP Paribas says that because of the potential upside risk, its 75 basis point call is skewed toward a more aggressive statement: “Markets are pricing in more than 150 basis points of gains for the year.”

The banking group expects further increases in November 2022 and January 2023 of 50 bps and 25 bps respectively.

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