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JOHANNESBURG - Markets have pencilled-in a resumption of rate hikes in South Africa next year, a move that would put an end to the central bank’s shortest easing cycle on record.

Such tightening would be a response to currency and inflation risks posed by the country’s political uncertainties.

The central bank cut rates in July for the first time in 5 years in a bid to boost growth after the economy sunk into recession, but instead of a further cut in September as expected by markets the bank kept the rate on hold.

A majority of analysts expect the South African Reserve Bank to keep the rates on hold again on Thursday, and will search for clues on where it sees lending rates in future.

In a speech on Nov 11, Governor Lesetja Kganyago said the expected inflation trajectory was still higher than what the bank preferred, with risks tilted to the upside, making any further policy decisions “highly data-dependent”.

Signs are that rates will rise. Both the one- and- three month forward rate agreements on the Johannesburg Securities Exchange were bid above 7 percent on Tuesday, compared with the central bank’s benchmark rate of 6.75 percent, implying that investors see rates moving up in the short term.

Forward rate agreements beginning in December are pricing-in a 40 percent probability of a 25 basis point hike to lending rates at the SARB’s first meeting of 2018, while those beginning in January see a 50 percent likelihood of a hike by the same margin.

Dismal medium-term budget forecasts in October, which saw the rand plunge to 12-months lows, and political wrangling ahead of the ruling African National Congress’ (ANC) conference in December to elect a successor for President Jacob Zuma as party head have intensified the threat of downgrades.

S&P Global and Moody’s are set to review their ratings on Friday, with a one-notch cut of the local-currency rating by both agencies likely to trigger sales of up to $12 billion of South Africa’s bonds.

Credit Suisse analyst Carlos Teixeira said the bank was likely to raise its forecasts for consumer inflation this week.

“The rand has weakened sharply, international oil prices have surged, the probability of a significant hike in electricity tariffs in 2018 has increased, fiscal policy has become more expansionary, and the risk of credit downgrades to sub-investment grade has escalated,” Teixeira said.

Over the last month forward markets “have turned 180 degrees” said Halen Bothma, economist at ETM Analytics.

“Since the rand blow-out after the budget we’re seeing much more hawkish expectations and the forward rates reflect that,” Bothma said.