The markets have all but pencilled in a hike of 50 basis points (bps) in interest rates when monetary policymakers meet next week, adding further pressure on embattled consumers.
If indeed the South African Reserve Bank’s monetary policy committee (MPC) hikes interest rates, it will mark the fourth consecutive hike.
The MPC raised its benchmark repo rate by 50bps to 4.75% at its May meeting, the biggest hike in the cost of credit in more than six years. Seventy-three percent of economists polled by Finder’s expect the central bank to increase the rate by another 50bps, taking the repo rate to 5.25%. Most economists also expect the repo rate to end the year at 5.75% and to increase to 6.25% next year.
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 GDP, and more aggressive policy tightening in advanced markets, particularly the US Fed, should result in the Reserve Bank further front-loading interest rate hikes.
“We now expect 50bps hikes in July, September and November, bringing rates to 6.25% by the end of 2022. Another 25bps in January brings the terminal repo rate to 6.5%,” she said.
Her views were shared by Investec chief economist Annabel Bishop, who said the US interest rate hike increases the likelihood of a 50bps hike at next week’s meeting.
“Currently we continue to expect a 50bp lift in SA’s repo rate from the MPC in July, with the SARB likely to follow the direction, but not necessarily the exact moves of the FOMC (Federal Open Market Committee), which has hiked in consecutive 25bp, 50bp and 75bp tranches so far this year,” she said.
However, while BNP Paribas chief economist Jeff Schultz said he agrees the SARB will and should hike the rate this month, he thinks an increase of 75bps is needed.
“With headline inflation likely to head north of 7% from June and with the SARB’s primary mandate of price stability, the SARB is likely to act more decisively to nip rising inflation and inflation expectations in the bud sooner rather than later in order to avoid a larger inflation problem down the line.”
The MPC meeting will be preceded by the release of June’s inflation print.
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%.
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