Sarb has sights set on 50bps increase, specialists say

Source: The South African Reserve Bank.

An overwhelming majority of Finder's panel of 26 economists, academics and property specialists (88%) say the rate will increase, while just one panelist thinks the rate will hold (4%) and two think it will decrease (8%).

The rate will increase by 50 basis points (bps), according to 73% of the panel with 12% forecasting a more moderate 25bps increase and one panelist (4%) calling for an increase of 75bps.

Stellenbosch University's Stan du Plessis is part of the majority who think the MPC will and should increase the rate by 50bps.

"Inflationary pressure has risen faster than we had previously thought. In addition, the international capital-market shock risk is greater than before due to the Fed's rapid normalisation of their policy rate. The Sarb cannot afford to fall behind the curve," he said.

However, managing director of Xesibe Holdings, Ayabonga Cawe thinks the MPC will only increase the rate by 25bps and is actually in favour of a hold decision, given most of the cost pressures anchoring inflationary expectations is due to external factors like supply-chain issues and the Russia-Ukraine conflict.

“...We also have our own internal challenges with the rising path of administered prices, load shedding and the failure of the infrastructure push to kick off which will lead to subdued demand conditions, and weaken the outlook for growth.”

A more aggressive stance is needed

Meanwhile BNP Paribas’s chief economist, Jeff Schultz thinks the MPC should be more aggressive with a 75bps increase due to persistent inflation in food and fuel prices.

“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 which could necessitate even bolder, more economically damaging policy action.”

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However, not everyone thinks the MPC should increase the rate. While Four Rivers Analysts managing director, Lebohang Liepollo Pheko predicts the MPC will hold the rate, she thinks it should cut the rate by 50bps or more due to growing financial pressure on consumers.

Finder’s panel thinks the rate will end the year at 5.75% on average and says the rate will peak at 6.25% in this cycle.

23% think the rate will peak by November while 15% say the rate will peak in the first half of 2023 and 35% in the second half. However, nearly a quarter of panelists don’t think we’ll see the top of the cycle until 2024 or later.

Gordon Institute professor, Adrian Saville thinks the rate will peak at 7% or higher.

“The Sarb moved early in the current hiking cycle - pre-empting the move underway by many other bankers - but leading banks are a long way behind the curve; the Sarb is some way ahead of other banks, but still behind the curve.

The rest of 2022 has at least two hikes of 50bps in store,” he said.

Citadel Global executive director, Bianca Botes thinks the rate will peak at 5.75% or possibly 6% at the end of the year if the MPC takes action from now to November and “[f we] enter a stage of normalised inflation and steady interest rates in 2023, and hopefully set our sights on growth and accommodative policies again towards 2024/25”.

The panel thinks inflation will be 6.49% at the end of the year and 5.36% at the end of 2023.