Another repo rate hike on the cards, warns economist
Chief economist at Efficient Group Dawie Roodt warns South Africans to expect another increase in the repo rate despite another decline in consumer inflation.
Stats SA released the latest data on Wednesday, which shows that consumer inflation eased to 7.2% in December, down from 7.4% in November and 7.6% in October.
This brought the average inflation rate of 2022 to 6.9% - the highest in 13 years.
Roodt expects an increase in interest rates when the South African Reserve Bank’s Monetary Policy Committee meets on next week.
The repo rate was increased by 75 basis points in November, the latest in a series of hikes as the central bank tries to keep the inflation rate in check.
The repo rate, at which the central bank loans money to commercial banks currently stands at 7%, while the prime lending rate is at 10,50%
Roodt says inflation has to drop to the Reserve Bank’s target range of between 3 – 6% before it will consider cutting the repo rate.
"The current inflation rate is still above the inflation target band of the South African Reserve Bank, so the Reserve Bank will remain concerned about the inflation that is so high. Chances are that the Reserve Bank will continue to increase the interest rate until they are happy.
“In terms of their forecast, inflation will fall to below 6%. I do believe that the Reserve Bank will continue to increase interest rates and we can expect another 25 basis point increase next week when the Monetary Policy Committee meets again.
Additionally to this is that there is another problem that last year the average inflation rate was 6,9% and the Reserve Bank now has to manage inflation expectations lower as well, so while the inflation is coming down and I think it will continue to come down, I do not think the Reserve Bank will suddenly cut the interest rate. For that we will have to wait at least another six to eight months," says Roodt.
Meanwhile, FNB senior economist Koketso Mano predicts that headline inflation will ease further to 6.7% in January.
"Headline inflation should moderate to within the inflation target range, at just over 5.0%, in 2023. This is with fuel as well as food and NAB (non-alcoholic beverages) inflation decelerating this year, while core inflation continues to normalise, and electricity inflation edges higher following Nersa’s approval of a nearly 19% price increase for Eskom’s direct consumers.”
She says while global inflation is falling, expectations remain elevated relative to pre-pandemic levels.
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