With inflation still on the rise, Reserve Bank set to hike interest rate again

THIS coming week, on Thursday, South Africans will know what the South African Reserve Bank (SARB)’s Monetary Policy Committee Meeting (MPC) decision will be on the repurchase (repo) rate for the country.

The Reserve Bank has been on an aggressive trend of hiking the rate in a bid to help curb inflation, which saw the previous eight meetings by the committee voting for an increase.

With inflation on the up, it is likely that the MPC will decide to increase the rate once again.

On Wednesday, this past week, Statistics South Africa (Stats SA) announced that inflation rose slightly more than expected in February, a further indication that rolling power cuts nationwide may be fuelling price pressures.

South Africa's headline consumer inflation rose to 7.0% year-on-year in February from 6.9% in January, Statistics South Africa said.

On a month-on-month basis, consumer inflation was at 0.7% in February compared to -0.1% in the previous month.

Analysts polled by Reuters had predicted the year-on-year figure to come in at 6.9% and month-on-month at 0.6%.

"The rise may be a sign that the intensification of load shedding in recent months is fuelling price pressures," Capital Economics said in a research note.

The South African Reserve Bank targets inflation of between 3% and 6%.

The central bank's MPC raised rates by a smaller than forecast 25 basis points in January as it lowered its economic growth forecasts over the crippling power cuts.

Many analysts are predicting another rate hike of 25 basis points (BPS) when the MPC meets this week.

Consumers’ wallets should be prepared to take another hit, as Frank Blackmore, Lead Economist at KPMG, told Business Report that South Africans could see a consensus of another 25 bps hike made at the MPC's meeting.

The SARB’s repurchase rate (repo rate) is currently 7.25%, and a 25bps increase would see the rate increase to 7.50%.

That would mean that the prime lending rate in the country will increase from 10.75% to 11%.

Blackmore said: “Although we have seen a reduction in headline inflation from the 7.8% in July 2022 to the current value in January of this year of 6.9%, the Reserve Bank has made it very clear that their further decisions regarding the repo rate would be dependent on inflationary data coming out. We know that the value of January’s data is way above the 3-6% target range of the Bank’s.”

He further said that, in addition, the inflationary expectation, which the bank collects via surveys, is still higher than the mid-point range of 4.5%.

Blackmore said: “As long as those two factors remain as they are, we can expect further increases in the repo rate as the bank will try to bring inflation down to manageable levels.

The only reprieve for consumers could be a decrease in fuel prices, as early data revealed that April could see a drop in prices.

– BUSINESS REPORT