South Africa’s prime lending rate stands at 11.75%. Photo: Dean Hutton/Bloomberg/Getty Images
With the upside risks to inflation having receded, analysts expect the South African Reserve Bank will hold interest rates at their current 14-year highs after its monetary policy committee (MPC) meets this week.
According to the Stellenbosch-based Bureau for Economic Research (BER) — which had initially pencilled in a 25 basis point hike in November — the central bank will probably keep interest rates unchanged. This is in line with the consensus forecast.
South Africa’s prime lending rate stands at 11.75%. This after the Reserve Bank opted to hike the repo rate, which affects the cost of borrowing, 10 times in a cycle which started in November 2021.
Since pushing rates into restrictive territory, the bank has held off on hiking after two consecutive meetings. If analysts are correct, Thursday’s MPC decision will mark the third.
The BER has based its forecast on the fact that a weak rand and ultra-hot oil prices no longer pose the same risk as they did earlier this year.
In a research note, Nedbank also surmised that the MPC would opt to hold the repo rate, noting that core inflation, which excludes food and energy prices, is trending in line with the Reserve Bank’s 4.5% target — indicating a notable easing in underlying price pressures.
That said, don’t expect a significant easing in inflation data when Statistics South Africa releases this print on Wednesday.
Although Nedbank expects the annual consumer inflation rate to hold steady of 5.4%, after seeing a sharp increase in September, the BER expects a further reacceleration to 5.8 — a hair’s breadth away from the Reserve Bank’s 6% upper limit.
According to the BER, prices will generally start to moderate in the second quarter of 2024, with inflation moving close to the midpoint of the Reserve Bank’s 3% to 6% target range by the end of next year.