Another interest rate hike may be on the way this week - here is what the experts have to say

It looks like South Africans must brace for another interest rake hike this year. The final one, according to experts, for the year 2022.

This Thursday, November 24, the South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) is meeting for the final time in 2022.

A consortium of 18 out of 20 economists and academics from Finder.com suggest that the SARB will most likely increase the interest rate.

It should be noted that the as of September 2022, the prime lending rate in South Africa is 9.75%.

According to Finder, more than half of their experts, when polled, expected the SARB to hike rates by 75 basis points (bps).

WHY DOES THE BANK HIKE UP INTEREST RATES?

This may be a basic question to many but it does need to be mentioned that “the SARB has been raising interest rates for most of 2022 to help bring inflation within target range,” according to Finder.

FINDER’S FINDINGS

As previously stated 55% of the experts argued that the SARB will hike the interest rate by 75 bps.
25% argued that the SARB will hike the interest rate by 50 bps.
10% of the experts said the SARB may hike the rate by only 25 bps.

A FEW VIEWS BY LEADING PANELLISTS

Oxford Economics economist Jee-A van der Linde said the SARB wants to see South Africa’s inflation slowing down.

“Assuming a slow pace of disinflation ahead, we forecast a 75 bps increase in the November meeting followed by an additional 50 bps rise in the policy rate in Q1 2023, which will see the repo rate reach 7.5%.”

Izak Odendaal, an Old Mutual Multi-Managers strategist notes that the SARB will follow or should follow the US Federal Reserve’s footsteps.

“The Federal Reserve is likely to start slowing down the pace of increases as US inflation is easing, and is close to the end of its hiking cycle. This takes pressure off the SARB and allows it to focus more on the domestic inflation outlook. With core inflation still solidly in the target range, South Africa does not need rates to rise substantially from here. Therefore, the SARB can also slow the pace of hikes, and is also close to the peak of the current cycle,” Odendaal argues.

Investec chief economist Annabel Bishop was the only panellist who said the SARB will increase the repo rate by 100 bps and may even be higher in order to keep up with the rate hikes by the Federal Open Market Committee (FOMC).

“By the end of the year the FOMC will likely have hiked rates by 5.50% in the current cycle, and SA by 4.75%, with the MPC likely to discuss a larger hike than 100 bps in November particularly given the higher end rate now signalled by the FOMC, and so could surprise on the upside. A narrowing interest rate differential between the US and SA leads to rand weakness against the US dollar”, Bishop advised.

SA CREDIT RATINGS REMAINS IN JUNK TERRITORY

In other fiscal news, SA remains a long way away from restoring its sovereign credit ratings status back to investment grade, despite making serious progress in its fiscal discipline and debt metrics.

On Friday, S&P Global Ratings agency maintained South Africa’s government bonds below investment grade, but acknowledged the improvement in the fiscus.

South Africa’s sovereign credit ratings status – as set by major ratings agencies Moody’s Investor Services, Fitch Ratings and S&P Global – is deep in junk territory.

Only the newly-established Sovereign Africa Ratings (SAR) pegged the country’s sovereign bonds at investment grade with a medium risk of a default in September.

S&P Global affirmed South Africa’s currency debt ratings at ‘BB-’ and ‘BB’, respectively, and retained a positive outlook.

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