The monetary policy committee (MPC) of the SA Reserve Bank meets this week to discuss the direction that the local interest rates should take, with some pointing to a likelihood of a 50 basis points increase to 5.25%.
The results from a recent Reuters poll of more than 20 economists have revealed that 19 of 23 economists expect a 50 basis points increase while the others have indicated a possible 75 basis points hike.
“We expect the SA Reserve Bank to hike by 50 basis points in July and September before returning to 25 basis points increases afterwards,” said Johannes Khosa at Nedbank.
FNB chief economist Mamello Matikinca-Ngwenya said the risk of a less transitory rise in inflation and higher inflation expectations, a faster recovery in the gross domestic product, and more aggressive policy tightening in advanced markets, particularly the US Federal Reserve, should result in the South African central bank further front-loading interest rate hikes.
“We now expect 50 basis points hikes in July, September and November, bringing rates to 6.25% by the end of 2022. Another 25 basis points in January [2023] brings the terminal repo rate to 6.5%,” said Matikinca-Ngwenya.
The country’s annual inflation rate quickened to 6.5% in May from 5.9% in April and March, above market expectations of 6.2%.
Since November 2021, the Reserve Bank has hiked the interest rates by 125 basis points.
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