Interest rate hike expected this week

 ·24 Jan 2022

South Africa’s Reserve Bank (SARB) is expected to raise interest rates to 4% at its Monetary Policy Committee (MPC) meeting on 27 January as part of an ongoing hiking cycle, a Reuters poll of economists shows.

18 of the 23 economists polled said the central bank would add 25 basis points (bps) to the repo rate this week, taking it to 4%, while the remaining five said the central bank would leave rates on hold. However, all five economists that expected the central bank to pause on 27 January predicted rates to rise in March.

The MPC decided in November to raise the repurchase rate by 25 basis points to 3.75% per annum. Forecasts show further hikes of 25 bps in every quarter from now until the second quarter of next year to 5.25%. The central bank is then expected to pause for the rest of 2023.

15 of the 16 economists in a separate Bloomberg survey predict a quarter-point increase and one a 50 basis points hike. Forward-rate agreements starting in one month used to speculate on borrowing costs, show traders are pricing in a more than 100% chance of a quarter-point increase.

More hikes coming 

South Africa is likely to see at least three interest rate hikes in 2022 as the South African Reserve Bank (SARB) has indicated that it will begin unwinding its accommodative monetary policy stance, say economists at Momentum Investments.

“In our view, well-behaved inflation, anchored inflation expectations, and a pedestrian growth outlook advocate a more moderate interest rate hiking cycle,” Momentum said.

“We expect the SARB to hike interest rates thrice by a cumulative 75 basis points in 2022 and a further three times by another 75 basis points in 2023.”

Momentum said that regulated administered prices such as electricity and water tariffs, as well as further government wage settlements, all pose a risk to the country’s inflation trajectory in the coming year.

“A tempered rise in rental inflation and reduced increases in medical aid tariffs are likely to drive an atypical response in local inflation.” Momentum expects headline inflation to average 4.5% in 2021, 4.6% in 2022, and 4.3% in 2023.

“The spike in consumer inflation to just below the ceiling of the SARB’s inflation target in the context of tightening of global monetary policy supports front-loading of the South African rate hiking cycle,” said Elna Moolman of Standard Bank.

“South Africa’s inflation remains reasonably benign given the persistently weak economy, but inflation is edging higher and the SARB’s interest rate normalization process will continue.”

Read: Nedbank’s forecasts for the rand in 2022

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