Economists predict big interest rates hikes

The Reserve Bank is expected to hike interest rates for the fifth consecutive time on Thursday afternoon.

Consumer inflation has hit a 13-year high and will fuel the Monetary Policy Committee’s rate decision.

The Monetary Policy Committee (MPC) wants to keep inflation expectations close to 4.5%, but the risk to economic growth is increasing. This includes state flood damage and more severe and frequent power outages, which are the second largest contributors to GDP. 

Prediction from a panel of 26 economists suggested that a 50-basis point increase is most likely. 

A Reuters poll of 23 economists also showed a widespread of expectations that a 50-basis point increase will be announced.

“We expect the SARB to hike by 50 basis points in July and September before returning to 25 basis points increases afterwards,” said Johannes Khosa at Nedbank.

The South African Reserve Bank’s baseline scenario initially called for a 25-basis point rate hike at each of the next three meetings of the year (including July), but South African Reserve Bank Governor Lesetja Kganyago said its “not yet on the table”. 

“Not even the South African Reserve Bank’s in-step increases have been able to do much to prevent the deterioration of the rand. Some analysts even expect the SARB to continue increasing interest rates by another 2% in 2022: I think that is a bit unnecessary and, as we have seen, it will not do a lot for inflation or the rand.

“Therefore, plan for another 2%, but expect at least another 1%.”

According to the FNB, the South African Reserve Bank should accelerate further rate hikes due to the risk of rising inflation expectations with less temporary inflation spikes and more aggressive monetary tightening in developed markets.

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