Another Reserve Bank interest hike on the cards

The South African Reserve Bank (SARB) is likely to raise interest rates at the next Monetary Policy Committee (MPC) meeting in November as inflation is “exhibiting unexpected persistence”. 

This was revealed in the Reserve Bank’s Monetary Policy Review released earlier this month. The review is a bi-annual report detailing the economic data the SARB uses to inform its monetary policy. 

“Although domestic headline inflation has returned to within the target range over the past three months, its stabilisation at the target midpoint is not an accomplished fact,” the SARB said. 

There are a number of global and domestic risks to the inflation outlook, and they appear unlikely to unwind in the near future. 

These risks include higher food and oil prices, higher-for-longer rates in developed markets and elevated government spending. 

Due to rising international oil prices, local fuel prices in South Africa increased by 7.5% in September and 4.7% in October. This will have a knock-on effect on local food prices, products, and services. 

Bank of America (BofA) now estimates that headline inflation will reach 5.2% in September, 5.7% in October, and an average of 5.6% in the fourth quarter. This is up from their previous estimate of 5% inflation at year-end.

However, South Africa also has structural economic issues that keep inflation elevated, which the SARB cannot address through monetary policy. 

In the Monetary Policy Review, the Reserve Bank called for “greater policy complementarities and the speedy implementation of structural reforms to ensure an adequate supply of energy, solve logistics challenges and reduce the impact of administered prices on inflation. 

This would not only provide significant economic benefits but would also initiate a further deceleration of inflation. 

The impact of these factors and the persistence of inflation has pushed the Reserve Bank to revise their forecast upwards for nominal repo rates at their last four MPC meetings. 

At their last meeting in September, the MPC revised its forecast for the nominal repo rate to just above the level expected in July. 

Moreover, the forecast indicates that the Reserve Bank expects rates to be higher for longer, with cuts coming in the second half of 2024. 

Interest rates will be higher for longer

Interest rates globally and in South Africa will be higher for longer as geopolitical tensions, poor economic performance, and uncertainty in developed markets will keep inflation high. 

This is feedback from Standard Bank Group CEO Sim Tshabalala, who spoke to CNBC Africa on the sidelines of the IMF-World Bank Annual Meetings in Marrakech. 

Tshabalala emphasised the impact of geopolitical tensions and conflicts on Africa, particularly the war in Ukraine and instability in the Middle East. 

This will heavily impact trade and investment across the globe at a time when the global economy is slowing down. 

“Interest rates are going to be higher for longer, including in Africa, as a consequence of the broader environment,” Tshabalala said. 

The CEO of Africa’s largest bank by assets was particularly concerned about the increase in global oil prices due to geopolitical conflict. 

This will drive inflation in countries reliant on oil imports, such as South Africa. In turn, the price of goods and services transported will increase. 

Worryingly, for states with high debt levels, such as South Africa, higher interest rates for longer will make raising capital, attracting investment, and paying off existing debt more difficult. 

However, South Africa may benefit from the rise in prices of other commodities, such as coal, which may strengthen towards the end of 2023. 


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