Consumers are set to feel the pinch once again later this week, as the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) is set to meet to make a decision on the repurchase rate (repo rate) for the country.
The members of the MPC will meet between 24 – 26 January, with the SARB governor, Lesetja Kganyago, making the announcement on the final day of the meeting.
The central bank is expected to maintain its hawkish monetary policy stance a bit longer, in spite of consumer prices softening to a seventh-month low in December.
Data from Statistics South Africa (StatsSA) last week showed that the annual headline consumer price inflation (CPI) slowed for the second month in a row in December, edging lower to 7.2% from 7.4% in November.
On a monthly basis, consumer prices were up by 0.4%, following a 0.3% rise in November, and slightly above market forecasts of a 0.3% increase.
StatsSA said the December CPI print was driven by the slowdown in transport inflation, which softened for a fifth consecutive month to 13.9% from 15.3% in November due to easing fuel prices.
Economists had widely predicted an increase of 50 basis points from the MPC in January, however, with the surprise decrease in CPI, some economists say that it could be slashed to 25 basis points.
Sanisha Packirisamy, Economist at Momentum Investments, told Business Report, “Although we had initially anticipated an interest rate increase of 50 basis points at this month’s Monetary Policy Committee (MPC) meeting, the downward surprise in headline and underlying inflation, subdued services inflation and signs of easing global inflation point to a strengthened case for a small rate rise of 25 basis points at the upcoming meeting.”
Packirisamy further said, “We expect the current interest rate hiking cycle to peak at 7.5% by the end of the first quarter, given that real interest rates, based on forward-looking inflation, are already in positive territory.”
Jeff Schultz, a senior economist at BNP Paribas South Africa, said, “We maintain our call for South African central bank SARB to raise its policy rate by 50bp to 7.50% next week, but now expect a much more finely balanced decision between 25bp versus 50bp given the December core CPI downside surprise."
“With most of South Africa’s disinflation driven by fuel – rather than core – prices, amid still rising inflation expectations we expect a majority on the SARB monetary policy committee to consider a bolder hike necessary. High administered price inflation, larger ZAR vulnerabilities and severe electricity supply cuts – which are seen as net-inflationary – underpin our expectation for a terminal policy rate of 7.75% by the end of Q1. We only see scope for modest rate cuts from Q2 2024,” Schultz further said.
According to Reuters, the MPC raised rates by 350 basis points since November 2021.
The repo rate in South Africa is currently 7.00% and a 50 basis point increase will take it to 7.50%.
The prime lending rate in the country currently sits at 10.50%, and if the Reserve Bank hikes it by a further 50 basis points at their January meeting, it will then take the prime lending rate to 11%.
If the MPC adopts a 25 basis point hike, the repo rate would rise to 7.25% from the current 7% and prime would rise to 10.75% from the current 10.50%.
The below graphic shows how much your home loan repayment would increase per month depending on the MPC’s decision for a rate hike:
Lara Hodes, an economist at Investec says, “We expect the MPC to hike rates by a more moderate 50bp (previously 75bp), in line with the Fed’s December move. Indeed, CPI while still notably above the SARB’s inflation targeting band (latest reading was 7.2% y/y) is projected to decline on base effects with a forecast for the year of 5.3% penciled in thus far. Upside risks however remain.”
BUSINESS REPORT