Reserve Bank interest rate hike – what to expect

Lesetja Kganyago

The South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) is meeting this week to decide on another interest rate hike.

The SARB’s Monetary Policy Committee conducts monetary policy within a flexible inflation-targeting framework.

The committee consists of up to seven members from the SARB: the governor, three deputy governors, and selected senior officials appointed by the governor.

The SARB Governor Lesetja Kganyago recently said it would continue using interest rates to curb inflation.

He highlighted that at 6.25%, the Reserve Bank’s repurchase rate is still below long-term levels, and in expansionary territory.

“Inflation erodes the buying power of the population,” Kganyago said. “If the authorities do not step in a deal with inflation, we are selling our people short.”

South Africa’s inflation rate declined for a second straight month to 7.5% in September.

However, central bank forecasts show that it will only return to the 4.5% mid-point of the target range by the fourth quarter of 2024.

Inflation is much higher than the SARB’s target range. Statistics South Africa revealed that the headline consumer-price index rose 7.6% from a year earlier, compared with 7.5% in September.

With Kganyago’s comments and the recent inflation data in mind, many economists predict a big interest rate hike from the SARB this week.

Here is a look at what South Africa’s top economists expect to hear on Thursday.

Annabel Bishop – 100 basis points

Investec chief economist Annabel Bishop expects a 100 basis point (bp) interest rate hike from the South African Reserve Bank this week.

At the September MPC meeting, the committee discussed the possibility of a 100bp hike instead of the 75bp increase that was eventually delivered.

“It means that the MPC members, on balance, choose the 75bp option, but this time around, could deliver a 100bp lift,” said Bishop.

She said the United States had hiked its interest rate by 3.75% and South Africa by 2.75%. The US is expected to hike by a further 50bp in December.

Bishop sees a possibility that the increase may even be higher as the SARB tries to keep up with the rate hikes by the Federal Open Market Committee (FOMC).

“A narrowing interest rate differential between the US and SA leads to rand weakness against the US dollar,” she said.

Dawie Roodt – 75 basis points

Dawie Roodt

Dawie Roodt, the chief economist at Efficient Group, predicts a 75 basis point rate hike but added that the SARB might go for 100 basis points.

“It is not only because of the rest of the world increasing interest rates, but because the country needs tighter monetary policy,” he said.

Higher interest rates will be painful to the economy and affect economic growth, but he said it is much better than having high inflation for a long period.

“My money is on 75 basis points, but if I was the Reserve Bank, I would have gone for a full 100 basis points,” he said.

Elize Kruger – 75 basis points

Independent economist Elize Kruger believes a 75bp increase is the most likely scenario in November.

“I think the SARB will follow the Fed by hiking 75bps at this meeting, though my view is that the upper turning point of the current headline CPI cycle has been reached,” said Kruger.

“Thus, on a forward-looking basis, headline CPI will moderate into 2023 – in South Africa and globally – and should provide room to taper the magnitude of the hike to 50bp,” she said.

Jeff Schultz – 75 basis points

Jeff Schultz, a senior economist at BNP Paribas South Africa, forecasts a unanimous 75 basis point hike to 7.00% at Thursday’s SARB MPC meeting.

“We expect a cautious tone, with the central bank unlikely to commit to any imminent ‘pivot’ until it is confident its 4.5% target midpoint is achievable in its forecast horizon,” he said.

“A weaker rand starting point compared with its September assumptions, stickier-than-forecast inflation, and an ‘end destination’ of more restrictive Fed policy into 2023 are likely to keep the MPC in risk management mode.”

“We maintain our forecast for the SARB to downshift to a 50 basis point hike in January, bringing an end to the hiking cycle at 7.50%.”

Johann Els – 50 basis points

Old Mutual’s chief economist Johann Els said there are increasing signs that global inflation is in peak territory, and headline inflation rates should roll over soon.

“We are looking at another 50 basis points in rate hikes in this cycle, maybe 50 basis points in November or 25 basis points each in November and January,” Els said.

“That will likely be the end of this upcycle.”


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