The monetary policy committee (MPC) of the South African Reserve Bank starts a two-day meeting in Pretoria on Wednesday to discuss what to do about inflation being outside the target of 3% to 6%.
The central bank is widely expected to announce a 1% rise in the repo rate, to 12,5%, following the conclusion of its meeting on Thursday.
This means the prime interest rate could increase to 16% from its current 15%.
Reserve Bank governor Tito Mboweni has previously indicated that the MPC may decide on ”further steps” with regard to interest rates.
He said the bank had seen some reaction to the decisions it had taken so far, adding, ”further steps cannot be ruled out”.
Inflation was at 10,4% in April.
The SARB has increased rates nine times by 450 basis points since June 2006 in an attempt to curb inflation.
But various organisations have asked the MPC to reconsider hiking the rates.
”The Inkatha Freedom Party strongly believes that many South Africans are already on the brink of financial ruin and that another massive interest rate hike will only make matters worse,” IFP spokesperson Hennie Bekker said on Tuesday.
”An effective response to externally driven inflation shocks cannot be through macro management alone,” SACP spokesperson Malesela Maleka said last week.
An increase in interest rates will slow down the economy and result in recession and job losses, the United Association of South Africa (Uasa) warned.
Finance union Sasbo expressed similar concerns and called on its 66 000 members to fax the Reserve Bank in protest to the possible hikes.
Labour federation the Congress of South African Trade Unions said the policy was completely inappropriate for a developing country like South Africa, with high levels of unemployment and poverty. – Sapa