SA Reserve Bank July interest rate hike – expert predictions

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) is set to make its next interest rate decision on 20 July, and experts are divided on whether South Africa will face a hawkish or dovish central bank.

The SARB has been in a hiking cycle since November 2021 to get South Africa’s high, sticky inflation within the Reserve Bank’s target range of 3% to 6%.

The MPC has implemented ten consecutive hike rates in this cycle – ranging from 25 to 75 basis points – totalling 475 cumulative basis points of hikes since November 2021.

This has brought the repo rate to 8.25% – a high last seen in 2009 during the global financial crisis.

Until recently, the SARB’s efforts to tame inflation were largely ineffective, with prices continuing to climb. Fueled by stubborn food and fuel inflation, headline consumer price inflation (CPI) reached decade highs.

However, this trend turned a corner in April 2023 when the annual headline CPI dipped below 6.9% for the first time in 11 months. Inflation continued to cool in May, with headline CPI dropping to 6.3%. 

SARB governor Lesetja Kganyago recently said the fight to tame rising prices delivered results, and the central bank will stick to its task to get them under control.

“Inflation has turned the corner,” he said. “What we need to see is inflation declining all the way to within our target range.”

He recently told 702’s Clement Manyathela that the Reserve Bank expects June’s inflation reading to come in at below 6% and 2023 inflation to average 6% or just below.

The Federal Reserve – which has also implemented ten consecutive rate hikes – recently decided to pause its hiking cycle, which started in March 2022.

While cooling inflation and the Fed’s pause could spell good news for the MPC’s decision come end-June, some experts believe the hiking cycle is not over.

Daily Investor asked four experts for their interest rate predictions for the July MPC meeting. Most agreed that a 25 basis point hike is likely, but highlighted that this meeting is a tough call.

Christie Viljoen – PwC South Africa senior economist

PwC South Africa senior economist Christie Viljoen said it is possible that the interest rate hiking cycle may have ended. 

His motivation for this view stems from the SARB’s forecast fan, which indicated interest rates peaked based on assumptions and forecasts during May.

In addition, headline inflation of 6.8% year-on-year in April and 6.3% year-on-year in May suggests that inflation will come close to the SARB forecast of 6.4% for Q3 2023. 

“With inflation slowing and likely to drop to 5.5% year-on-year by year-end, the SARB is well on its way to soon achieving the real (i.e. inflation-adjusted) repo rate of 2.5% it desires,” he said.

  • Prediction: interest rate pause

Kim Silberman – Matrix Fund Managers economist and macro-strategist

Matrix Fund Managers economist and macro-strategist Kim Silberman said she expects the MPC members will be divided concerning the upcoming policy rate decision. 

She said Kganyago characterised the country’s monetary policy as restrictive following May’s 50 basis point hike, which provides room for the committee to pause. 

“However, it is likely that the MPC members preferring to pause are outvoted by those looking to hike by 25 basis points,” she said.

The base effects should see CPI moving below 5.5% year-on-year in June. However, this data will only be released after the meeting. 

“We expect the SARB will look to cut rates as soon as global monetary policy starts to position for what we think will be a deflationary environment in the second half of 2023.”

  • Prediction: 25 basis point hike

Dawie Roodt – Efficient Group chief economist

Dawie Roodt

Efficient Group chief economist Dawie Roodt said the July MPC meeting “is a bit of a difficult call to make”. 

“The Fed decided to sit on their hands for one meeting, and thereafter they are probably going to keep increasing by another 25 or 50 basis points or so. The Reserve Bank may decide to sit on their hands as well or to give a 25 basis points increase,” he said.

However, Roodt said he suspects the committee will opt for a 25 basis point increase.

He said it is important to note that South Africa is getting very close to the upper turning point of interest rates, and the July hike could be the last or second-last hike in the cycle. 

  • Prediction: 25 basis point hike

Wichard Cilliers – TreasuryONE director and head of market risk 

TreasuryONE director and head of market risk Wichard Cilliers said that the SARB will opt for a 25 basis point interest rate hike based on the prevailing economic conditions and market analysis. 

“The primary objective behind this potential move is to address the persistent inflationary pressures, which have continued to exceed the SARB’s target band of 3% to 6%,” he said.

“Factors contributing to the elevated inflation levels include the sustained high food inflation, exerting upward pressure on overall prices. Furthermore, the depreciation of the rand has resulted in increased costs of importing fuel, further contributing to inflationary concerns.”

He added that the SARB’s decision may be influenced by the Fed’s intention to continue to raise interest rates, “and the SARB is likely to be reluctant to refrain from similar action”.

  • Prediction: 25 basis point hike


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