Global Courant 2023-04-19 15:40:14
Traders are betting that South Africa’s central bank will continue its rate hike cycle next month after inflation unexpectedly accelerated in March.
Interest rate forward agreements starting in two months — used to speculate on borrowing costs — show traders fully pricing in a quarter-point (25 basis points) increase in buyback rates, with a chance of a bigger 50 basis point move on May 25 when the monetary policy committee takes his next decision.
That is after data from the statistics office showed that annual inflation accelerated from 7% a month earlier to 7.1%. The outcome beat the estimates of all 13 economists in a Bloomberg survey.
The rand extended losses and was trading 0.5% weaker against the dollar to 18.2550 by 10:35 AM in Johannesburg. Yields on local currency debt maturing in 2032 rose five basis points to 10.8%, the highest since February 22.
The South African Reserve Bank prefers to anchor price growth expectations near the midpoint of 4.5% of its target range.
A survey published ahead of the interest rate decision in March found that analysts, unions and households expect inflation to average 6.3% this year. That suggests policymakers approaching the end of the rate-hike cycle may still be reluctant to refrain from tightening at next month’s rate-setting meeting.
The central bank has delivered 425 basis points of tightening since November 2021, with the larger-than-expected move of 50 basis points in March surprising financial markets.
The MPC believes it made the right decisions to return price growth to the middle of its target range, “but this cannot preclude further moves if inflation and inflation expectations continue to surprise higher,” Governor Lesetja Kganyago said this month in a speech.
Price growth in Africa’s most industrialized economy is being fueled by currency weakness, severe power rationing and logistics network restrictions that are driving up the cost of doing business and undermining the country’s economic growth prospects. Food and non-alcoholic beverage inflation accelerated by 14%, the biggest annual increase since 2009, according to Statistics South Africa.
Read: Nasty inflation shock for South Africa as food prices rise
