While inflation data to be released this week is likely to be more favourable, there is still a strong possibility of even more rate hikes than the market is currently expecting, Standard Chartered Bank said in a statement on Monday.
Standard Chartered Bank African Economist Razia Khan said that with the strengthening of the rand, market expectations for further tightening have been scaled back significantly.
“The release of potentially favourable inflation data over the coming week, likely to reflect the sizeable October domestic fuel price cut, may add to the belief that the SARB is almost done tightening.
“However, while acknowledging the risk to our forecast of a 10% peak in the repo rate stemming from a stronger rand and more stability in oil prices, we maintain our view that there will be more rate hikes than the market has currently priced in.”
Khan asserted that South African Reserve Bank governor Tito Mboweni’s recent “belt tightening” speech, highlighting that there is no rule prohibiting a change to the monetary policy stance before Christmas, strongly suggested that a 50bps December rate hike is still on the cards.
This will take the repo rate to 9%.
“The debate revolves around how much more tightening is needed for the safe achievement of the inflation target. The most recent inflation forecasts, released with the monetary policy review in November, still see inflation peaking around 6%, and declining only slowly to 5,4% by the end of the forecast horizon.
“As favourable as recent influences — the stronger rand, moderating oil prices — have been, this is still likely to be too close for SARB’s comfort. Barring a dramatic revision of these inflation forecasts and with all signs pointing to still strong demand, caution is likely to remain the SARB’s preferred approach.
“More rate hikes would still make sense.” – I-Net Bridge