Expect another Reserve Bank interest rate hike tomorrow, say experts

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has its next meeting tomorrow, 20 July, and experts believe this meeting will see the SARB implement its final interest rate hike of this cycle.

The MPC has hiked the country’s interest rate ten times since November 2021, when the current hiking cycle started. It has implemented a cumulative 475 basis points of hikes, bringing the repo rate to a 14-year high of 8.25%.

The interest rate was increased to rein in South Africa’s high inflation, which had reached decade-highs over the past few years.

While local and global inflation has been sticky, the SARB’s efforts have yielded positive results in the past few months, with both April and May’s CPI data showing a downward trend in inflation.

This trend continued in June. StatsSA announced that annual CPI was 5.4% in June 2023, significantly down from the 6.3% recorded in May 2023. This is the lowest inflation the country has seen since October 2021.

This is the first time the inflation has been in the South African Reserve Bank’s target range of 3% to 6% since April 2022.

Daily Investor asked experts for their predictions of what the MPC may decide at its next meeting, and most experts expect that we will see either the end of the hiking cycle or the last hike in the cycle.


Source: Martin Good / Shutterstock

Nedbank said the SARB is set to implement what will likely be the final hike in this cycle at its July MPC meeting.

It expects the downward trend in headline inflation seen in April and May to intensify during the second half of the year.

Strong base effects, lower global food, oil, and other commodity prices combined with much weaker domestic demand will likely offset the impact of a volatile rand and persistent load-shedding. 

“We now see inflation ending the year at 5%, lower than our previous forecast of 5.2%. Overall, headline inflation is forecast to average a lower 5.9% in 2023 (6.1% previously) before receding to 4.8% and 4.6% in 2024 and 2025, respectively,” it said.

Nedbank said most of the upside risks to the inflation outlook identified at the May MPC meeting have also eased. 

“On the domestic front, electricity supply proved fractionally more reliable than most expected this winter, and the rand pulled back from record lows against a weaker US dollar,” it said.

However, despite these hopeful developments, a vulnerable rand and the likely return of more severe load-shedding remain the key upside risks to the inflation outlook.

Nedbank, therefore, forecasts one last rate hike of 25 basis points in this cycle for next week’s meeting. 

“Although we still believe that the SARB has done enough to tame inflation and facilitate a sustainable decline towards the target range, we suspect that the MPC will err on the side of caution.”

  • Prediction: 25 basis point hike 

Angelika Goliger – EY Africa chief economist 

EY Africa chief economist Angelika Goliger said she expects South Africa is in store for another 25 basis point increase at the next MPC meeting.

She said the committee will likely remain cautious and feel that the economic damage of overtightening is likely to be less than the impact of inflation at higher levels. 

However, she said there is a chance that the MPC may keep the repo rate at the current rate of 8.25% as inflation has come down significantly. 

“The June numbers, to be released on Wednesday, will likely show further price moderation.”

  • Prediction: 25 basis point hike 

Samuel Seeff – Seeff Property Group chairman

Seeff Property Group chairman Samuel Seeff said the country’s interest rate is too high, and the SARB should keep the repo rate unchanged.

“The interest rate is too high. It is stymieing economic growth and driving unemployment and higher debt levels, and it is now enough,” he said.

“While we are aware that Reserve Bank governor Lesetja Kganyago has signalled that a further 25-basis points hike may be necessary to curb inflation, we urge the Bank to consider holding off and keeping the repo rate unchanged at 8.25%.”

He said the burden on consumers, homeowners and buyers is simply too high.

“On top of electricity and other hikes, they have already had to absorb 475 basis points in rate hikes and are being “punished” when current inflation is not due to domestic spending, but is largely imported.”

He said inflation has, in any event, been coming down, and the rand-US dollar exchange rate appears to have stabilised.

“In reality, the higher interest rates have done more harm than good”, as they have exacerbated the country’s weak economy, which needs a kickstart.

Seeff said property sales volumes are down as the market reflects the interest rate hikes. Even the Cape market, which has been strong, is seeing a decline in sales volumes as fewer buyers are now active. 

“The burden is now simply too high for consumers and home buyers.”

  • Prediction: interest rate pause

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

*Headline image copyright: World Economic Forum / Faruk Pinjo


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