The South African Reserve Bank is likely to hike interest rates by a further 25 basis points this week to 4.25% in an attempt to slow inflation, say economists.
A poll of economists said prices could rise faster than they had expected before Russia’s invasion of Ukraine. Fifteen of 19 economists polled in the last week predicted the repo rate would rise by 25 basis points to 4.25% on March 24, while the remaining four said it would be left unchanged.
“The decision, statement, and tone are likely to strike a more hawkish note, though at the same time, acknowledge a high degree of uncertainty,” said Jeff Schultz – senior economist at BNP Paribas South Africa.
He said that higher inflation projections and adjustments to the interest rate gap model – due to higher rate hike assumptions – means that the central bank’s quarterly projection model is very likely to imply a faster pace of hikes compared to its January estimates.
“Though a 50bp hike is unlikely to be delivered, we do not rule this out from May, depending on the evolution of oil and food prices and their imminent second-round impacts on expectations,” Schultz cautioned.
“While the decision itself is unlikely to come as a surprise, we think the statement and quarterly projection model outputs are likely to be closely scrutinised for signs of a central bank becoming increasingly uncomfortable with the inflation outlook with deeper negative real rates likely to ensure over the coming quarters,” he said.
Since starting the normalisation of interest rates cycle, the SARB has hiked twice, 25bp each in November 2021 and January 2022, taking policy rate to 4%, Tatonga Rusike, Sub-Saharan Africa economist for BofA Securities noted.
He said that since the January MPC, several developments have taken place: Russia/Ukraine conflict resulting in rising oil prices; stronger ZAR per USD, lower increase in Eskom tariff than baseline, and the Fed has initiated its hiking cycle in a hawkish tone.
The Bureau of Economic Research said that a 50bps hike should not be ruled out completely. “Outside of the rate call it will be interesting to see how the SARB sees the war in Ukraine influencing SA and the inflation trajectory going forward.”
The day before the SARB decision, Stats SA will release the February SA consumer inflation print, which the BER anticipates coming in at 5.7% year on year – unchanged from January.
The Bloomberg consensus is at 5.8% year on year , it said. President Cyril Ramaphosa is expected to address the nation soon to provide guidance on how the government is planning to manage regulations relating to Covid-19 once the state of disaster is lifted, which was once again extended by a month last week, to 15 April,” the BER said.
A forecast by 18 economists, academics, and property specialists, polled for Finder.com’s repo rate forecast report, also finds that SARB’s Monetary Policy Committee is set to increase the repo rate at the March 24 meeting.
The majority of panellists expect the rate will increase by 25 basis points, while three say the rate will increase by 50 basis points.
Standard Bank SA head of economic research Elna Moolman and University of the Free State associate professor Johan Coetzee both think the rate will increase by 25 bps.-bustech
