Morgan Stanley has changed its call on South African interest rates and now expects the central bank to raise borrowing costs this week, saying renewed oil-price pressure increases the risk that inflation takes longer to return to its 3% target.<\/p>\n\n\n\n
Analysts Andrea Masia and Arnav Gupta now expect the South African Reserve Bank to raise its policy rate by 25 basis points to 7.25% on 23 September, reversing their previous call for a hold. <\/p>\n\n\n\n
They say a hike would be \u201cinsurance\u201d against a sequence of supply shocks delaying inflation\u2019s convergence to the target that would eventually affect inflation expectations.<\/p>\n\n\n\n
The shift in view comes after a renewed rise in the oil price, which Morgan Stanley expects will prompt an upward revision to the SARB\u2019s near-term inflation outlook. <\/p>\n\n\n\n
The analysts said the case for tightening isn\u2019t based on a deterioration in inflation expectations or evidence that the initial energy shock is spreading more broadly through the consumer-price basket.<\/p>\n\n\n\n
Instead, the concern is that renewed energy-price pressure could keep inflation above target for a prolonged period.<\/p>\n\n\n\n
\u201cThe longer that happens, the greater the risk that those expectations become unanchored,\u201d Masia and Gupta wrote in a report to clients seen by Bloomberg. <\/p>\n\n\n\n
They said the SARB is unlikely to tolerate that risk as it seeks to establish credibility around its inflation target, which it adopted last year.<\/p>\n\n\n\n
Morgan Stanley argues that higher oil prices also weaken the effectiveness of a strategy of keeping rates unchanged for longer. <\/p>\n\n\n\n
The rise in inflation would reduce real interest rates, eroding some of the restraint currently being provided by monetary policy.<\/p>\n\n\n\n
The global backdrop also became less supportive of a South African hold when the Federal Reserve raised its benchmark interest-rate range by 25 basis points this week to 3.75% to 4%. <\/p>\n\n\n\n
That followed rate hikes by the European Central Bank on 10 September, and the Bank of Japan on 18 September.<\/p>\n\n\n\n
Morgan Stanley said a combination of higher global rates and oil prices would leave less room for the rand to absorb another adverse shock, although the currency has so far remained resilient.<\/p>\n\n\n\n
Beyond next week\u2019s meeting, Morgan Stanley expects the SARB to hold rates through 2027.<\/p>\n\n\n\n
The analysts said markets are pricing about 75 basis points of additional tightening, but they see limited scope for South African short-term rates to fully reflect those expectations, given recent domestic data and their broader forecasts.<\/p>\n","protected":false},"excerpt":{"rendered":"
Morgan Stanley expects South Africa’s Reserve Bank to raise interest rates, changing its previous forecast of a hold.<\/p>\n","protected":false},"author":59,"featured_media":857007,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"_sma_x_autopost_status":"posted","_sma_x_autopost_error":"","_sma_x_post_id":"2101936727703105694","_sma_facebook_post_id":"191437357620492_2211825809637818","_sma_instagram_post_id":"18333099346276401","_sma_x_attempts":1,"footnotes":""},"categories":[4],"tags":[26580,26581,2890,3619],"class_list":["post-876361","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-opinion","tag-andrea-masia","tag-arnav-gupta","tag-morgan-stanley","tag-sarb"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/876361","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=876361"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/876361\/revisions"}],"predecessor-version":[{"id":876379,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/876361\/revisions\/876379"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/857007"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=876361"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=876361"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=876361"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}