Reserve Bank interest rate expectations from experts

Lesetja Kganyago

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) is set to meet again this Thursday, and many experts believe the committee will keep the repo rate unchanged.

Since the current interest rate hiking cycle started in November 2021, the MPC has hiked the repo rate ten times by a cumulative 425 basis points.

This has brought the repo rate to a decade-high of 8.25% as the SARB has attempted to bring South Africa’s high, sticky inflation down and within its target band of 3% to 6%.

Their efforts seem to have borne fruit, as inflation has moderated to within this band and is now close to the mid-point of the target (4.5%), as July’s inflation print showed CPI standing at 4.7%.

At its last meeting in July, the MPC decided to pause the rate hiking cycle but said it remained resolute in keeping inflation down and that this pause does not mean the end of the hiking cycle. 

SARB Governor Lesetja Kganaygo said the MPC would remain data-dependent in all future decisions.

As the next MPC meeting looms, Daily Investor asked experts for their interest rate predictions, and there was an overwhelming consensus that the SARB will – and should – keep the repo rate unchanged at 8.25%.

Jan-Daan van Wyk – Stonehage Fleming senior analyst

Stonehage Fleming senior analyst (investment management) Jan-Daan van Wyk said the SARB had hiked the repo rate by 475 basis points since the pandemic. 

At 8.25%, it is now 150 basis points higher than its previous peak in June 2019 (6.75%). 

In addition, a measure of the tightness of monetary policy setting, the real repo rate – when deducting some measure of inflation – is high.

Compared to July 2023’s headline inflation of 4.7%, the real repo rate is 3.6%. 

“Considering the SARB’s latest expectation for headline inflation in 2024 (5.0%) shows a real repo rate of 3.25%,” he said. 

“Looking at aggregate survey-based inflation expectations for 2024 from the Q3 BER survey, which shows expectations of 5.5% for headline inflation, gives us a real repo rate of 2.75%.” 

The SARB’s internal view of a neutral real repo rate is 2.5%. 

“We, therefore, view the real rate as restrictive and believe the SARB does not need to hike at its upcoming MPC meeting.”

“Notwithstanding the risks posed by a recent rebound in agricultural commodity prices (food) and the higher oil price (fuel) to headline inflation in the next couple of months, we view survey-based inflation expectations moderating recently as a stronger force when the MPC meets this week.”

The SARB MPC – and other developed market monetary authorities – are also not at the juncture they were 18 months ago when inflation persistently surprised to the upside and proved not to be transitory. 

“We contend that this is not the current setting, and central bank focus has shifted back to longer-term inflationary pressures.” 

He said the MPC meeting on Thursday will focus on hinting at potential cuts to the repo rate in 2024.

  • Prediction: No change

Angelika Goliger – EY Africa chief economist

EY Africa chief economist Angelika Goliger said the SARB Governor’s remarks over the weekend poured cold water on any hope that there would be an interest rate cut anytime soon. 

“On the positive side, we have seen inflation within the Reserve Bank’s target range of between 3% to 6% over the last two prints, and we will see this again when the August CPI report comes out on Wednesday,” she said. 

“To add to the good news, inflation expectations have also moderated, showing that businesses, unions and households anticipate inflation to calm further going forward.”

However, she warned that there are risks to the inflation outlook, including higher oil prices, the continued impact of the Ukraine war, and the effect of El Nino on agriculture.

She said these factors could all result in higher food and fuel prices and will concern the MPC.  

“So, like many central bankers globally, I expect the MPC to take a ‘higher for longer’ approach to policy rates, and we are unlikely to see any interest rate cuts in 2023.”

  • Prediction: No change

Miyelani Maluleke – Absa Corporate and Investment Banking economist

Absa Corporate and Investment Banking economist Miyelani Maluleke expects the MPC to keep the repo rate unchanged at 8.25%.

“Our expectation is in line with a near-unanimous analyst consensus, with the Thomson Reuters poll published last week showing that 29 out of 30 analysts expect no change in the repo rate, with only one forecasting a hike,” he said. 

While interest rates are likely to remain unchanged, the details of the statement will be scrutinised as the market tries to understand how monetary policy will evolve going forward.

“We believe that the MPC will retain a cautious tone in its statement due to several factors,” he said. 

Despite the continued deceleration in headline CPI inflation until July, near-term upside inflation risks have increased since the last MPC meeting. 

In addition, Brent crude oil prices have risen by about 18.0% since the July MPC meeting, while the rand has weakened by 2.1% in trade-weighted terms. 

Some upward revision to the SARB’s near-term CPI inflation forecasts seems likely at this MPC meeting.

Meanwhile, the recent escalation in load-shedding intensity will keep the MPC concerned about business mitigation costs and the risk of pass-through to consumer prices. 

Moreover, although the Q3 BER survey showed a marked moderation in average inflation expectations, the expectations of businesses and labour unions remain near the top end of the target range. 

Aside from domestic factors, the ongoing uncertainty about the global interest cycle will likely also concern the MPC. 

“As such, we expect the MPC to retain a cautious tone in its remarks, consistent with the risks to the inflation outlook,” he said.

  • Prediction: No change

Annabel Bishop – Investec chief economist

Investec chief economist Annabel Bishop

Investec chief economist Annabel Bishop said the SARB is expected to keep interest rates on hold this week. However, the risk of a 25 basis point hike remains, particularly after the Fed lifted its rates by 25 basis points at its last meeting.

She explained that lowering the difference between South African and US interest rates (narrowing the interest rate differential) weakens the rand, placing upward pressure on inflation. 

While South Africa’s interest rates have remained unchanged since May after a 50 basis point hike in that month, the US hiked by 25 basis points in May and July.

However, the US has seen more monetary policy meetings in its interest rate hike cycle than South Africa, raising its bank rate by 5.25% versus South Africa’s 4.75%.

“While this would indicate room for a further interest rate hike of up to 50 basis points, inflation in South Africa has dropped rapidly, while inflation is likely to average close to 4.5% year-on-year next year, indicating no need for a hike.”

However, she warned that the risk is to the upside for inflation as drier conditions from the El Nino weather pattern could put pressure on food prices, although it is too early to determine the degree.

“An interest rate hike would narrow the differential between the US and South Africa’s interest rates, but heavily indebted consumers and the increased financial vulnerability of households mean higher interest rates are lowering economic growth,” she said.

“Consequently, an interest rate lift this week could cause little to no lasting appreciation in the rand and, instead, could well cause rand weakness.”

She said the US and South Africa’s central banks are, however, expected to reveal hawkish tones as they seek to influence inflation expectations and, therefore, consumer actions by implying more interest rate hikes could be likely.

  • Prediction: No change

Kim Silberman – Matrix Fund Managers economist and macro strategist

Matrix Fund Managers economist and macro strategist Kim Silberman expects the SARB to keep interest rates on hold despite higher oil prices.

“With the policy rate at 8.25% and inflation around 5.0%, real rates should conservatively average 3.0% over the forecast period,” she said.

“In a GDP growth environment of 1.0%, 3.0% is prohibitive. We expect the SARB will refer to oil prices as a risk to its inflation forecast but also to remind us that it tends to look through the first-round effects of supply shocks.”

She said that looking ahead, unlike in previous cycles, South Africa’s interest rates will be driven primarily by the global interest rate cycle and, as such, domestic cuts will require that the US central bank start cutting rates.


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