Top South African economist shares good news about interest rate hikes

Going against market expectations, PSG Financial Services chief economist Johann Els said he does not believe the Reserve Bank will hike interest rates at its September meeting.

Els explained that the Monetary Policy Committee’s (MPC) early May hike and promising signs that inflation will slow in the coming months will discourage further rate increases.

Els’ comments come after the Bureau for Economic Research (BER) released its Inflation Expectations Survey for the third quarter of 2026.

He described the results of the survey as “very positive”, as they showed unchanged or lower inflation expectations, whether for the current year or over five years.

“While most of the expectations did not decline to levels seen in the first quarter, they were down from the second-quarter survey numbers,” Els pointed out. 

He said many had expected the expectations to be higher than they were in the second quarter. 

Instead, household inflation expectations declined to their lowest level in five years, with 12-month expectations dropping from 6% to 4.9%

In contrast, trade union inflation expectations were unchanged for the current year between the second and third-quarter surveys. 

However, for 2027, trade union expectations are down from 4.4% to 4.1%. For 2028, expectations are down from 4.4% to 3.9%. 

“This is crucially important in terms of inflation expectations driving wage demands and, ultimately, inflation, in terms of both trade union expectations and household expectations,” Els said.

“This is very encouraging when we think of the MPC meeting coming up next week.” 

Els pointed out that these lower inflation expectations, combined with the MPC’s early rate hike implemented in May 2026, lead him to believe that the committee will keep rates unchanged in September.

“I think the Reserve Bank will keep rates unchanged, not only because of the early rate hike in May, with many other central banks still not having moved interest rates,” he said.

“That very early rate hike limits the need for further rate increases, especially against the backdrop of these lower inflation expectations in the third quarter of this year.”

Ongoing inflation concerns

Despite these lower inflation expectations for the year ahead, Els acknowledged ongoing concerns about high oil prices and inflation.

However, he believes these factors are temporary and that oil prices will eventually come down again.

“Basically, that will also help inflation. The fact that inflation expectations have come off, that’s a key part of this argument,” he said.

Els’ belief that the MPC will not vote to hike interest rates at its September meeting runs counter to current market expectations and the Forward Rate Agreement (FRA) curve.

Investec chief economist Annabel Bishop said the FRA curve shows an 85% chance of a 25-basis-point interest rate hike in September, with a second hike fully priced in by the end of the year. 

She pointed out that the BER Inflation Expectations Survey was conducted before the recent escalation in the Middle East War.

This, she said, means that it did not capture the steep escalation in oil prices seen in September.

“However, it already shows wage expectations were high and rose further to 5.0% from 4.8%,” she said. 

“The inflation target is 3.0%, and the SARB will likely be worried about the high and rising wage expectations, indicative of second-round effects in inflation.”

Bishop explained that the Reserve Bank would likely see another small interest rate hike in September, reducing the need for larger, more severe hikes down the line.

A smaller hike, she said, may have a quicker and more substantial impact on reducing inflation.

South Africa’s CPI inflation rate declined from 5% in June 2026 to 4.3% in July, though it is expected to rise again in August due to higher oil and fuel prices.

“However, the MPC makes decisions at its meeting, not before, and much depends on the length of the current elevation in international oil and petroleum product prices,” she said.

“While a 25 basis point hike is expected in South Africa’s repo rate this month, much depends on the speed of the SARB’s reaction to current events.”