Rate hike likely, to quell inflation
Interest rates may go up this week when the Reserve Bank’s monetary policy committee (MPC) convenes for its last meeting of the year, delivering on its previous warnings that rates would need to begin rising to tame inflation.
It would be the first hike since March 2016.
Amid recessionary economic conditions, the central bank has been at pains to keep rates on hold despite rising inflation.
But at the last MPC meeting, in September, three of the seven members voted for a hike, leading economists to believe that the risk of an increase is significant this week.
FNB chief economist said the bank expected to see a hike of 25 basis points (bps).
At its last meeting, the MPC was split three to four, with the no-hike supporters edging out the hawks. But at this week’s meeting the committee will comprise only six members, with the bank’s governor, a known hawk, casting the final decision in the event of a 3:3 split.
October inflation data, to be released on Wednesday, is expected to show an acceleration, though still within the Bank’s 3% to 6% target range.
Bus fares, television licences and funeral expenses, along with a sharp rise in the fuel price, are among the factors in higher inflation, Matikinca said. A key concern was the pace of Federal Reserve monetary-policy tightening, with the next hike in the US expected next month.
“The SARB may well decide to get ahead of the Fed’s rate hike with one of their own. The arguments against a hike, however, are equally compelling given the recent currency gains, oil price declines and the exceptionally weak growth environment,” Matikinca said.
Investec chief economist Annabel Bishop said: “We continue to forecast a 25bps hike in the repo rate in November, but the chance of it occurring has likely reduced somewhat.”