South Africa is set for another year of interest rate hikes which will hit the buying power of South Africa’s middle-class in the coming months, says professional services firm PwC.<\/p>\n
The South African Reserve Bank’s Monetary Policy Committee (MPC) warned on 24 March 2022 that South Africa\u2019s commodity price basket is forecast to rise by 8% for the year as a whole.\u00a0 This is a sharp departure from import deflation seen in recent years.<\/p>\n
The MPC decided in March to lift interest rates by another 25 basis points \u2013 three of the committee members favoured this increment while the other two called for a 50 basis point increase.<\/p>\n
“The SARB\u2019s forward guidance currently suggests a year-end repo rate of 5.06% compared to a projection in January of 4.91%,” PwC said.<\/p>\n
“There is not much difference in these two forecasts; this suggests that the SARB has not significantly altered its planned path of monetary policy tightening over the short- to medium-term. As such, we still expect the repo rate to close this year at 5.00% and return to its pre-pandemic level of 6.50% by the close of 2024.”<\/p>\n
A repo rate of 4.25% reflects a comparatively accommodative monetary policy outlook compared to pre-Covid-19 levels. However, as with rising inflation rates, households at different income levels will face challenges with increasing interest rates within the context of a weakened economy, the firm said.<\/p>\n
“The expected increase in the repo rate of 100 to 125 basis points through 2022 from 2021 levels could well leave some lower-middle to middle-income households paying more for recently acquired vehicles or properties to the extent that they would be forced to \u2018buy down\u2019 or cancel other discretionary spending items such as (additional) insurance and savings products.”<\/p>\n
South Africa is likely to see another interest rate hike next week, although the increase could be larger than previously forecast, said economists at the Bureau for Economic Research (BER) in a research note this week.<\/p>\n
\u201cAgainst the global backdrop of more rapid policy normalisation and, importantly, the associated recent sharp weakening of the rand exchange rate, and the sustained upside risks to domestic inflation, we now expect the South African Reserve Bank (SARB) to hike the repo rate by 50bps next week,\u201d the group said in a research note on Monday (9 May).<\/p>\n
\u201cThis is a change from the previous view for a 25bps hike at the May policy meeting. The SARB\u2019s decision is unlikely to be unanimous,\u201d it said.<\/p>\n