Reserve Bank forecast to increase key rate by 25 bps to 4.00% on January 27
Inflation is creeping towards the top end of the Bank’s target range, justifying an increase in line with tighter monetary policy worldwide, economists say
19 January 2022 - 11:38
byVuyani Ndaba
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SA's inflation remains reasonably benign given the persistently weak economy, but prices are edging higher and the SARB's interest rate normalisation process will continue, says Standard Bank economist Elna Moolman. Picture: SUPPLIED
The Reserve Bank (SARB) will raise interest rates to 4.00% on January 27 as it continues its hiking cycle as consumer price inflation picks up, according to a Reuters poll on Wednesday.
Eighteen of 23 economists polled from January 12-18 said the Bank would add 25 basis points (bps) to the repo rate next week, taking it to 4.00%, while five said it would leave rates on hold.
“The spike in consumer inflation to just below the ceiling of the SARB’s inflation target in the context of tightening of global monetary policy supports front-loading of the SA rate hiking cycle,” said Elna Moolman of Standard Bank.
“SA’s inflation remains reasonably benign given the persistently weak economy, but inflation is edging higher and the SARB’s interest rate normalisation process will continue,” Moolman added.
Stats SA on Wednesday reported that annual consumer price inflation, as measured by its consumer price index (CPI), rose to 5.9% in December, its biggest annual increase since March 2017 when the rate was 6.1%. Prices rose 0.6% month on month.
CPI is forecast to average 4.8% this year, slow to 4.5% in 2023 and 4.4% in 2024, the poll shows. That’s around the midpoint of the Bank’s 3%-6% target range.
All five economists who expect the Bank to pause on January 27 predicted rates to rise in March. It last hiked rates in November to 3.75%.
One of those, Barclays’ Michael Kafe, said his view remained the next hike would be in March as core CPI begins to track higher on recovering rental and insurance costs, with another 25-bps hike in September as a recovery in GDP growth provides enough comfort to remove excessive stimulus.
The median forecast is for increases of 25 bps in every quarter from now until the second quarter of next year, to 5.25%. The Bank is expected to pause for the rest of 2023.
Two-year US Treasury yields rose above 1% for the first time since the start of the Covid pandemic on Tuesday as traders positioned for the possibility of a hawkish surprise from the Federal Reserve that could end with four rate hikes this year.
A hawkish Fed has the potential to attract capital flows away from emerging markets, including SA.
Economic growth is seen maintaining a steady path of 2.0% over the next three years.
Reuters
Update: January 19 2022 This story has been updated with the latest CPI data, for December 2021, in the fifth paragraph
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Reserve Bank forecast to increase key rate by 25 bps to 4.00% on January 27
Inflation is creeping towards the top end of the Bank’s target range, justifying an increase in line with tighter monetary policy worldwide, economists say
The Reserve Bank (SARB) will raise interest rates to 4.00% on January 27 as it continues its hiking cycle as consumer price inflation picks up, according to a Reuters poll on Wednesday.
Eighteen of 23 economists polled from January 12-18 said the Bank would add 25 basis points (bps) to the repo rate next week, taking it to 4.00%, while five said it would leave rates on hold.
“The spike in consumer inflation to just below the ceiling of the SARB’s inflation target in the context of tightening of global monetary policy supports front-loading of the SA rate hiking cycle,” said Elna Moolman of Standard Bank.
“SA’s inflation remains reasonably benign given the persistently weak economy, but inflation is edging higher and the SARB’s interest rate normalisation process will continue,” Moolman added.
Stats SA on Wednesday reported that annual consumer price inflation, as measured by its consumer price index (CPI), rose to 5.9% in December, its biggest annual increase since March 2017 when the rate was 6.1%. Prices rose 0.6% month on month.
CPI is forecast to average 4.8% this year, slow to 4.5% in 2023 and 4.4% in 2024, the poll shows. That’s around the midpoint of the Bank’s 3%-6% target range.
All five economists who expect the Bank to pause on January 27 predicted rates to rise in March. It last hiked rates in November to 3.75%.
One of those, Barclays’ Michael Kafe, said his view remained the next hike would be in March as core CPI begins to track higher on recovering rental and insurance costs, with another 25-bps hike in September as a recovery in GDP growth provides enough comfort to remove excessive stimulus.
The median forecast is for increases of 25 bps in every quarter from now until the second quarter of next year, to 5.25%. The Bank is expected to pause for the rest of 2023.
Two-year US Treasury yields rose above 1% for the first time since the start of the Covid pandemic on Tuesday as traders positioned for the possibility of a hawkish surprise from the Federal Reserve that could end with four rate hikes this year.
A hawkish Fed has the potential to attract capital flows away from emerging markets, including SA.
Economic growth is seen maintaining a steady path of 2.0% over the next three years.
Reuters
Update: January 19 2022
This story has been updated with the latest CPI data, for December 2021, in the fifth paragraph
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