SARB likely to hold fire but leaves the door open for future rates hike
Vaccine rollout will drive next move
While most economists expect the South African Reserve Bank (SARB) to hold the repo rate, there is strong expectation that the central back will begin hiking interest rates next year.
All 21 economists on Finder’s panel believe the repo rate (the rate at which the bank lends money to commercial banks) will remain unchanged at 3.5% when the bank’s monetary policy committee (MPC) announces its decision on Thursday.
However, while all panellists think that the rate will remain the same, the majority expect the bank to start hiking interest rates within 18 months.
Around a quarter of the economist polled think we’ll see an increase as soon as November, while the majority think the rate will hold until 2022. University of the Free State’s Johan Coetzee said that the next rate rise will come in the second half of 2022 and will hinge on the rollout of a Covid-19 vaccine.
“Not until the economy opens up to its full capacity and the global economic environment does the same, can we expect the SARB to consider interest rate changes,” Coetzee said.
“The success of the vaccine rollout is central to this. In effect, therefore, the conditions driving an interest rate increase are primarily driven by exogenous factors largely out of our immediate control.”
His views are shared by head of research at Intellidex Peter Attard Montalto. However, Montalto expects a repo rate rise in the first half of 2022.
Chief economist at Efficient Group Dawie Roodt was more bullish, predicting that the rate will move in November of this year.
Managing director for Xesibe Holdings Ayabonga Cawe and lecturer at the University of South Africa Mzwanele Ntshwanti both feel that the Reserve Bank should be more bullish in its approach and cut interest rates this week by 50 basis points.
Ntshwanti argues that “decreasing the repo by 50 basis points will give room to households to spend and firms to aggressively invest in the economy for recovery”.
The SARB unanimously voted to keep its benchmark repo rate unchanged at a record low of 3.5% in March. The bank’s governor, Lesetja Kganyago, stressed that the pace of a local economic recovery would depend on the pace of vaccination and the appearance of a likely third wave of infections.