An overwhelming number of economists believe it is a foregone conclusion that the Reserve Bank will again announce a hefty interest rate hike on Thursday – with the only question being by how much more will the price of credit go up by.
The central bank’s monetary policy committee (MPC) will conclude its last meeting of the year on Thursday and announce its verdict.
At its last meeting, the Lesetja Kganyago-led bank raised the benchmark repo rate by 75 basis points to 6.25%. It was the sixth consecutive hike since policy normalisation started in November 2021 to anchor inflation expectations more firmly around the mid-point of the target band of 4.5%
The central bank has had to contend with runaway inflation that is still high, despite having fallen in recent months. The annual inflation rate eased for the second straight month to 7.5% in September from 7.6% in August and 7.8% in July, but was still well above the upper limit of the Reserve Bank’s target range of 3%-6%.
Early in November, Kganyago warned that it is not the time for policymakers to loosen their grip on inflation.
“Now that the global economy is recovering and inflation in many countries, including our own, is rising, we have learned from experience that we must not be tempted to loosen our grip on inflation, or to fall behind our peers as rates are normalised – the consequences would be too costly,” he cautioned.
Inflation, economic growth, commodity prices, and the actions of other central banks around the world influence the decisions the MPC takes.
Annabel Bishop, chief economist at Investec, said: “At the last MPC meeting, the committee discussed the possibility of a 100 basis points hike, instead of the 75 basis points increase that was eventually delivered in South Africa’s repo rate, i.e. the members on balance chose the 75 basis points option, but this time around could deliver a 100 basis points,” Bishop said.
Oxford Economics economist Jee-A van der Linde shared Bishop’s assessment and said the central bank will likely increase the rate by 75 basis points as policymakers will want to see compelling evidence of slowing inflation.
“Assuming a slow pace of disinflation ahead, we forecast a 75 basis points increase in the November meeting followed by an additional 50 basis points rise in the policy rate in the first quarter of next year, which will see the repo rate reach 7.5%,” Van Der Linde said.
Economists also warned consumers not to expect any interest rate cut until at least 2024, agreeing that the country will enter a recession within 12 months.
Tshwane University of Technology professor, Mulatu Fekadu Zerihun, said South Africa will enter a recession in 2023 due to the “unfavourable global economic conditions and energy crisis”.
KPMG released a study that shows 72% of local executives have already taken steps to boost productivity in preparation for the anticipated recession.
“South Africa will be entering this recessionary period on an extremely weak footing, with its high levels of poverty and unemployment making it extremely vulnerable to the effects stemming from the global slowdown in economic activity,” Business Leadership South Africa CEO Busi Mavuso said.
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