Reserve Bank interest rate hike – what economists expect for the rest of 2023

Lesetja Kganyago

On Thursday, the South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) increased interest rates by 25 basis points (bp), taking the country’s repo rate to 7.25%.

The increase marks the eighth rate hike in the current cycle, with the total adjustment being 375 basis points since the cycle started in November 2021.

Although most economists expected a 50 basis point rate hike from the Reserve Bank, many accurately predicted the 25 basis point increase because of economic headwinds.

The same debate played out at the SARB’s MPC, with three members voting for a 25bp hike and two preferring a 50bp move.

One of the prominent aspects of the latest announcement was the significantly worse prospects of economic growth.

The Reserve Bank cut South Africa’s real GDP growth forecasts for the next three years to 0.3%, 0.5%, and 1%, respectively.

Reserve Bank governor Lesetja Kganyago said high load-shedding levels and logistical constraints hamper economic growth.

The good news for consumers is that many economists predict that the current rate hike cycle is close to its peak.

Most economists predict another interest rate increase in the coming months after the repo rate will hold.

Here is a summary of comments from prominent South African economists about the Reserve Bank’s 25 basis point rate hike.

Jacques Celliers – FNB CEO

Jacques Celliers said while central banks may continue to raise interest rates to fight inflation, there are clear indications that this rate-hiking cycle may be coming to an end.

FNB chief economist Mamello Matikinca-Ngwenya believes that the MPC will reach the terminal of the current hiking cycle in Q1 2023.

“If another 25bps hike is delivered in March, there should be space to support the economy before year-end,” she said.

Jeff Schultz, BNP Paribas South Africa senior economist

Jeff Schultz said the SARB kept its rhetoric around inflation unequivocally hawkish, making clear that it sees the risks to CPI as skewed to the upside.

“We maintain our call for a final 25bp hike in March and, as a result of today’s decision, revert back to a terminal policy rate forecast of 7.50% by the end of Q1,” he said.

“We continue to see limited scope for the SARB to begin cutting rates until Q2 2024.”

Angelika Goliger, EY Africa’s chief economist

Angelika Goliger said South Africa is nearing the end of its spate of rate hikes. “I think there will be one more repo rate increase of 25bps at the next MPC meeting in March,” she said.

“However, this will depend on how the rand performs and the extent to which load-shedding places pressure on food prices.”

Looking beyond the first quarter of 2023, she expects rates to remain at this higher level to the end of the year, with some rate cuts starting to come through in 2024.

Arthur Kamp, Sanlam Investments chief economist

Arthur Kamp said inflation is only expected to return to the mid-point of the inflation target range by the final quarter of 2024.

“The Reserve Bank has frontloaded its interest rate hikes in this cycle. Also, at 7.25%, the repo rate is above the level of 7.08% projected by its quarterly projection model for year-end 2023,” he said.

If the projections for inflation and growth are accurate, South Africa is close to the peak of the current rate hike cycle. “Perhaps one more 25bp interest rate hike before, at the least, a pause.”

Luigi Marinus, PPS Investments portfolio manager

Luigi Marinus said although the hiking cycle has continued, the 25 basis point increase is more modest than the previous hikes.

“It may be viewed as an indication that the MPC is nearing the terminal rate, but the governor was adamant that no forecasting of a terminal rate was done,” he said.

“The MPC will not shy away from further interest rate hikes should inflation not moderate as anticipated.”

Carmen Nel, Matrix Fund Managers economist

Carmen Nel said if inflation expectations in the BER’s Q1 survey show a marked decline, then there is a notable chance that this is the end of the hiking cycle.

“However, we think the numerous risks between now and the March meeting will ensure that a further 25bp hike remains on the cards. It will take the peak in the policy rate to 7.50%,” she said.

“The voting distribution, tone of the statement, and significant event risk give the SARB the option to hike again in March.”

Sanisha Packirisamy, Momentum Investments economist

Sanisha Packirisamy said the SARB is likely to maintain a firm tone in the near term as it acknowledges persistent upside risks to the inflation trajectory.

She expects global interest rate normalisation and an uptick in longer-dated inflation expectations to 5.5%.

“We suspect the end of the rate hiking cycle is on the horizon and only anticipate one more interest rate hike of 25 basis points in March,” she said.

Chris Tyson of Tyson Properties

Chris Tyson said the 25 basis point interest rate hike by the South African Reserve Bank was positive.

“It is a sign that interest rates are levelling off to be in line with pre-Covid levels,” Tyson said.

Tyson Properties CEO Nick Pearson added that this latest increase would enable buyers and sellers to readjust to a post-pandemic economy.


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