Consumers should brace for another interest rate hike when the SA Reserve Bank (SARB) monetary pricing committee meets next week, economists forecast on Monday.
Bureau for Economic Research (BER) economists highlighted in the research unit’s weekly newsletter that interest rates were on the rise globally and that the SARB was likely to increase rates by a further 50 basis points when the committee meets on May 19.
“The international focus last week was firmly on monetary policy announcements by several central banks. All eyes were on the US Federal Reserve’s (US Fed) interest rate decision midweek, with key US labour market data also out on Friday. On the local front, the focus was on the PMI releases for April, which deteriorated on the back of the devastating flooding in KwaZulu-Natal (KZN) as well as stage four load-shedding during the month,” the BER said.
The US Fed hiked its interest rate by 50 basis points (bps) last week, which was the biggest increase in more than 20 years, although some market players had bet on a 75bps hike this month.
“Going forward, Fed chair Jerome Powell signalled that 50bps increases were also likely at the next two meetings (June and July), with a probable return to 25bps increment increases from September. In the UK, the Bank of England raised its policy interest rate by 25bps. It was the fourth consecutive meeting where the UK policy rate was increased,” the BER said.
However, India and Australia’s reserve banks were more hawkish and announced 40bps and 25bps hikes respectively, while central banks in Poland and Czech Republic increased their rates by 75bps, with similar hikes expected next month.
“The European Central Bank (ECB) is now expected to join the rate-hike crowd as early as July, with above-zero policy rates projected by the end of the year. Against the global backdrop of more rapid policy normalisation and, importantly, the associated recent sharp weakening of the rand exchange rate, and the sustained upside risks to domestic inflation, we now expect the SA Reserve Bank (SARB) to hike the repo rate by 50bps next week,” the BER said.
“This is a change from the previous view for a 25bps hike at the May policy meeting. The SARB’s decision is unlikely to be unanimous. The key question remains whether the US Fed in particular will be able to engineer a so-called ‘soft landing’, which would mean that economic growth and the labour market hold up despite steep interest rate increases,” the economists added.
