South African economists and analysts say the country needs to brace for another rate hike this week as the South African Reserve Bank’s (SARB) Monetary Policy Committee meets in the coming days.
Finder’s panel of 22 economists, real estate specialists and academics agree a rate hike is imminent, with most expecting a 25 basis point hike when Reserve Bank Governor Lesetja Kganyago makes this announcement on Thursday (March 30). .
This would bring the repo rate to 7.5% and the prime lending rate to 11.0%.
A minority of experts believe that the central bank could raise interest rates by 50 basis points.
The market experts attribute the rate hike predictions to inflation. Stats SA released its latest inflation figures last week (March 22) showing a slight increase in headline inflation to 7% (from 6.9% in January), with core inflation accelerating to 5.2% (from 4. 9%).
BNP Paribas chief economist Jeff Schultz said: “High and sticky inflation and inflation expectations mean we believe the SARB has more work to do to ensure inflation returns sustainably to its desired 4.5% midpoint target. “
Old Mutual Wealth strategist Izak Odendaal also sees SARB rates being increased by 25 basis points, but thinks the rate should be maintained instead.
“Despite the recent turmoil in the US banking system, the Federal Reserve is likely to continue to raise interest rates in the face of continued inflationary pressures and labor market imbalances. Faced with this further upward pressure on US interest rates, the MPC is likely to respond with a 25 basis point increase.
“The main reason is that… the MPC will insure itself against further disorderly falls in the rand. However, the economy does not need higher rates as domestic inflationary pressures are largely supply-related,” he said.
Meanwhile, Wits Business School, visiting professor Jannie Rossouw, thinks that a larger increase is justified. He predicts that the SARB will and should raise the rate by 50 basis points.
“Inflation expectations must be contained to bring domestic inflation back to the midpoint of the inflation target in a reasonable time frame,” he said.
According to the Bureau of Economic Research (BER), the global focus will probably remain on possible further contagion from the banking problems that have emerged in the US.
Taken alone, the dampening impact on global growth from the likely tightening of US and European bank credit standards should lead the SARB’s MPC to take a more cautious approach to further policy rate hikes, the report said.
However, as global issues play against a volatile domestic market – including a weakening trend for the rand exchange rate since the late January MPC meeting and upside surprises in January and February CPI – an increase of 25 basis points.
“This brings the policy rate to 7.5%, 50 basis points above the SARB’s estimate of the neutral policy rate,” it noted.
Where to now?
While most experts agree that there will be a rate hike this week, they are less united about what lies ahead for South African interest rates.
Two-thirds of the panel expect the SARB to hold rates through the end of the year, ending the current cycle of rate hikes that began in November 2021. After that, they see room for rate cuts sometime in the first half of 2024.
However, the remaining analysts are not sure that the cycle of rate hikes is just over and see room for at least one more hike at the central bank meeting in May.
Dawie Roodt, chief economist of the Efficient Group, is among those predicting rate hikes for both the March and May meetings.
“We are getting closer to the top of the CPI and interest rate cycle and small increases should be enough,” he said.
With May’s decision a toss-up between a rate fix and a hike, the panel was evenly split on their forecast for when interest rates will peak. Just over half (55%) of panelists believe March will be the peak of this interest rate cycle.
Meanwhile, more than a fifth (23%) believe it will peak in May and 18% believe the rate will peak sometime in the second half of 2023 or the first half of 2024. Only one panelist, PwC South Africa senior economist Christie Viljoen, thinks the share price already peaked in January.
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