SARB set to hike repo rates amid high food, fuel prices

South Africans are set for a rude awakening when they come from the long weekend,  with the Reserve Bank expected to hike interest rates, making credit more expensive for consumers already facing a surge in fuel and food prices.

The central bank’s monetary policy committee (MPC) will on Thursday announce their interest rate decision, with most economists expecting a hike in the cost of credit.

This is according to a unanimous forecast by 18 economists, academics, and property specialists polled for Finder.com’s South African Reserve Bank (SARB) Repo Rate Forecast Report.

Standard Bank SA head of economic research Elna Moolman said she expects the monetary policymakers to increase the repo rate by 25 basis points (bps).

“The SARB wants to normalise interest rates after aggressive easing early during the pandemic and it wants to ensure that inflation expectations remain anchored despite sharp increases in food and fuel prices. However, it is also mindful of the fragility of the economic recovery,” Moolman said.

Stanlib economist Ndivhuho Netshitenzhe said while he expects two more rate hikes following the next decision, he argues that rate hikes in South Africa should be done conservatively.

“The upside risks to inflation, together with a more aggressive unwinding of the highly accommodative monetary policy in the US will, most likely, inspire the SARB to keep hiking rates in 2022. But they should remain gradual in their approach
given the ongoing uncertainty,” he said.

South Africans are grappling with record fuel prices, taxes, and levies as well as increases in basic household items. While domestic inflation averaged 4.5% in 2021, it has persistently increased in recent months.

President Cyril Ramaphosa this week said he had set up a committee of ministers to assess the impact that the conflict in Ukraine will have on food and fuel prices.

Data from the Pietermaritzburg Economic Justice & Dignity group shows that as of February 2022, a food basket for the average South African household will cost you R4 355. This is up 8.9% from February 2021.

FNB economist Koketso Mano said Russia’s ongoing invasion of Ukraine had materially lifted prices of most essential items, including food.

“Faced with the dual risk of tightening global financial conditions and high domestic inflation expectations, we expect the MPC to cautiously hike interest rates by 25bps this year, putting the repo rate at 5.25% by the end of November 2022,” Mano said.

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