What to expect from interest rates in South Africa this week

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) will be meeting this week and will announce a decision on interest rates on Thursday (26 January).

According to Finder’s poll of 20 economists, academics and analysts, 93%, or 19 out of 20, forecast a rate hike on the way.

More than half (59%) of the panel think the rate will be increased by 50 basis points (bps), while a third (33%) predict just a 25bps increase.

The anticipated rate hike comes amid high inflationary conditions in South Africa, with the latest CPI print for December 2022 showing inflation at 7.2%. While this is down from 7.4% recorded in November, it is still sitting outside the SARB’s targetted range of 3% to 6%.

Reserve Bank governor Lesetja Kganyago has made it clear that the central bank will continue using rate hikes as its key tool to contain inflation and said that hikes would continue as long as inflation remains high.

“We have seen inflation go up like a rocket and down like an escalator (slowly),” said Kganyago. “We need to see it within the target range (3% – 6%).”

BNP Paribas chief economist Jeff Schultz said that the central bank will likely go with a 50bps hike in this week’s meeting.

Other views, like those from the Bureau of Economic Research, say it will be a close call between 25bps and 50bps. If it is a lower hike now, the balance (25bps) would be expected in March.

Finder’s poll shows that finance experts broadly see rate hikes coming for the first two meetings of the year, with a chance of rate cuts to follow in the latter half of the year. However, views are split, with a significant portion seeing the central bank holding rates for much of 2023.

Stellenbosch University COO and professor of economics Stan du Plessis also says the rate could hold from March provided the inflation forecast doesn’t deteriorate.

“If the longer-term forecast realises, then [the] repo rate may be reduced in the course of 2024,” he added.

The BER noted that, with the exception of the approved electricity tariff increase for 2023 being higher than pencilled in by the SARB, other developments since the MPC’s November meeting point to a possible downward revision to its 2023 headline CPI forecast (5.4% in November).

This could lead to lower rates down the line.

Economists at Nedbank said that the tone from the MPS is likely to remain hawkish, stressing the risks to the inflation outlook.

“However, we believe that interest rates are near their peak in this cycle, given the evidence of fading global inflationary pressures, the gradual easing of domestic inflation, weaker domestic growth prospects, and the US Fed’s decision to take a less aggressive monetary policy stance,” the bank said.

Nedbank expects a 25bps hike on Thursday, followed by another hike of a similar margin in March – which is said will likely be the last hike in the current cycle, taking the prime rate to a peak of 11%.

“Unlike the consensus, we do not expect any rate cuts later this year due to the upside risks to the inflation outlook.”

Investec chief economist Annabel Bishop expects a 50bps hike from the SARB, also flagging inflation as the key driver.

Most of Finder’s panellists expect the repo rate to peak at 7.5% this year.

Read: Room for more interest rate hikes in South Africa: Kganyago