Chance of an interest rate hike for South Africa has increased significantly: Nedbank

Nedbank says that it expects the South African Reserve Bank (SARB) to leave interest rates unchanged in its Monetary Policy Committee meeting on Thursday (18 November) but that the chances of a hike have increased significantly.

The bank was commenting on Statistics South Africa’s latest Consumer Price Inflation (CPI) data, which shows headline inflation remained above the SARB’s mid-point level of 4.5% for the sixth consecutive month. Nedbank said that upside risks to the outlook will probably be present until early next year.

“Concerning factors include persistent global supply chain disruptions and port congestion which have resulted in higher shipping costs. Global oil prices remain elevated on the back of supply and demand imbalances.”

These costs pressures have pushed producer inflation sharply higher in most countries. Global food inflation has shown no signs of abating and will probably also contribute to higher inflation in the near team, it said.

“Rising inflation in major developed economies, particularly the US, suggests that the Fed might need to hike interest rates sooner than initially anticipated. Furthermore, other emerging economies, particularly in Europe and Latin America, have already hiked policy rates, providing a buffer against the expected normalisation in US monetary policy.”

This leaves South Africa behind the global curve, heightening the rand’s vulnerability to any abrupt changes in risk sentiment, the bank said.

“However, the country’s subdued economic outlook will probably keep inflation in check. Within this context, we still expect interest rates to remain unchanged at tomorrow’s MPC meeting. However, the chances of a hike have increased significantly.”

The implied policy rate path of the Reserve Bank’s quarterly projection model, which it uses as a guide, indicates a 25-basis point increase in the final quarter of this year and in every quarter of 2022 and 2023.

Of 20 economists in a Bloomberg survey, 11 predict a quarter-point increase in the benchmark this week, while the remainder see no change.

Read: Petrol price hikes and 5 other things that are more expensive in South Africa

Must Read

Partner Content

Show comments

Trending Now

Follow Us

Chance of an interest rate hike for South Africa has increased significantly: Nedbank