SA Reserve Bank to raise repo rate one last time in 2023

The logo of South Africa’s central reserve bank is seen during the delivery of a keynote address by South Africa’s central bank governor, Lesetja Kganyago, at the University of the Witwatersrand in Johannesburg, South Africa. REUTERS/Siphiwe Sibeko

By Vuyani Ndaba

JOHANNESBURG (Reuters) – South Africa’s Reserve Bank will raise interest rates one last time in its current cycle on May 25, adding at least 25 basis points in a final bid to cool persistently sticky inflation, a Reuters poll found on Wednesday.

Eleven of 20 economists surveyed in the past week expect the Reserve Bank to hike by 25 basis points to 8.00%, while five forecast a half-a-per-cent rise to 8.25%. The remaining four predicted no change.

The SARB has hiked its repo rate by 425 basis points in the past 18 months, tracking moves by major central banks. The U.S. Federal Reserve is now likely done with rate hikes, and South Africa’s central bank is also expected to pause after next week’s hike, the poll found.

Read More: South Africa’s inflation rises for the second month, driven by food prices

The SARB will then cut rates by 25 basis points in the first quarter of next year, followed by another 25 bps cut in the third quarter, according to a consensus of forecasts from the poll.

South Africa’s next inflation release is due on May 24, and “we expect bad news on both fronts: sticky inflation and another SARB hike,” wrote Tatonga Rusike, an economist at BofA.

Inflation is expected to average 5.9% this year, slow to 4.9% next year and move closer to the mid-point of the Reserve Bank’s comfort level of 3%-6% at 4.6% in 2025.

Read More: Eswatini records decline in preliminary gross official reserves

“Overall, inflation should decelerate from here. Upside risks are linked to food prices, currency weakness and additional load-shedding costs,” added Rusike.

Sentiment for the South African rand has soured on local media reports of a further delay to maintenance at the country’s only nuclear power station, heightening fears South Africa’s ongoing power crisis will deepen.

The country’s economic growth is expected to slow to 0.2% this year, accelerating to 1.3% in 2024.

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