South African economists and analysts say the country should brace for another interest rate hike this week as the South African Reserve Bank’s (SARB’s) Monetary Policy Committee meets over the next few days.

Finder’s panel of 22 economists, property specialists and academics agree that a rate hike is coming, with most expecting a hike of 25 basis points when Reserve Bank governor Lesetja Kganyago makes the announcement on Thursday (30 March).

This would take the repo rate to 7.5%, and the prime lending rate to 11.0%.

A minority of experts believe that the central bank could hike rates by 50 basis points.

The market experts attribute the rate hike predictions to inflation. Stats SA published the latest inflation numbers last week (22 March) showing a slight uptick in headline inflation to 7% (up from 6.9% in January), with core inflation accelerating to 5.2% (from 4.9%).

BNP Paribas chief economist Jeff Schultz said, “high and sticky inflation and inflation expectations means that we think the SARB still has more work to do in ensuring inflation comes back sustainably towards its preferred 4.5% midpoint target.”

Old Mutual Wealth strategist Izak Odendaal also sees the SARB hiking rates by 25bps – but thinks that the rate should hold instead.

“Despite the recent turmoil in the US banking system, the Federal Reserve is likely to continue raising rates in the face of persistent inflationary pressures and labour market imbalances. Faced with this further upward pressure on US interest rates, the MPC is likely to respond with a 25bps hike.

“The main reason is that… the MPC will take out insurance against further disorderly rand declines. However, the economy does not need higher rates as domestic inflation pressures are largely supply-related,” he said.

Meanwhile, Wits Business School visiting professor Jannie Rossouw thinks a bigger hike is warranted. He predicts the SARB will and should increase the rate by 50bps.

“Inflation expectations should be contained to reduce domestic inflation to the midpoint of the inflation target range in a reasonable period of time,” he said.

According to the Bureau for Economic Research (BER), globally, the focus is likely to remain on possible further contagion from the banking problems that originated in the US.

“In isolation, the dampening impact on global growth from the likely tightening in US and European bank lending standards should see the SARB’s MPC take a more cautious approach towards further policy rate hikes,” it said.

However, because the global issues are set against a volatile domestic market – including a weakening trend for the rand exchange rate since the end-January MPC meeting and upward surprises in the January and February headline CPI – in all likelihood a 25bp hike is coming.

“This will take the policy rate to 7.5%, 50bps above the SARB’s estimate of the neutral policy rate,” it noted.

Where to next?

While most experts agree that a rate hike will hit this week, they are less united on what lies ahead for South Africa’s interest rates.

Two-thirds of the panel expect the SARB to hile on rates until the end of the year, bringing an end to the current interest rate hike cycle which started in November 2021. After this point, they see room for rate cuts sometime in the first half of 2024.

However, the remaining analysts are not confident the hike cycle is over just yet, and see room for at least one more hike at the central bank’s May meeting.

Efficient Group chief economist Dawie Roodt is part of those who predict rate increases for both the March and May meetings.

“We are getting closer to the upper end of the CPI and interest rate cycle and small increments should suffice,” he said.

With the May decision a toss-up between a rate hold and a hike, the panel was equally divided on their forecast for when the rate will peak. Just over half (55%) of the panellists believe March will be the peak of this rate cycle.

Meanwhile, over a fifth (23%) believe it will peak in May and 18% think the rate will peak at some point in the latter half of 2023 or the first half of 2024. Only one panellist, PwC South Africa senior economist Christie Viljoen, thinks the rate already peaked in January.