The South African Reserve Bank (SARB) is set to visit more pain on consumers when it announces its decision on interest rates on Thursday, with economists expecting the central bank to increase the cost of borrowing further.
The bank raised its benchmark repo rate by another 25 basis points (bps) to 4.25% in March. It was its third consecutive hike due to increased inflation risks stemming from the war in Ukraine.
A poll of 22 economists, academics and property specialists who are part of the Finder’s panel found there is overwhelming evidence that the Lesetja Kganyago-led bank “will and must” hike interest rates.
Ninety-five percent of the experts polled said interest rates will and should increase, while just one panellist said the bank should hold the rate. The rate will increase by 50bps, according to 62% of the Finder’s panel.
Isaah Mhlanga, chief economist of Alexander Forbes, said the rate will surge by 50bps to allow the economy to cope with global financial conditions.
“We expect SA inflation to rise above the SARB’s upper target of 6% driven by fuel, electricity, food and goods prices. Further, we expect global financial conditions to tighten faster resulting in a weaker US dollar/rand exchange rate, thus the SARB must normalise in line with the Fed [US central bank] and other major central banks,” he said.
RMB economist Mpho Molopyane said she has pencilled in four rate increases and feels that the repo rate – the rate at which the central bank lends to commercial banks – will end the year at 5.5%.
“The faster pace of hiking in advanced economies will put pressure on the SARB to hike by 50bps at the May meeting and to move by increments of 25bps thereafter as it becomes apparent growth is likely to disappoint relative to earlier expectations,” she said.
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