Expect more rate hikes in 2023: expert
The South African Reserve Bank (SARB) is not slowing down with rate hikes any time soon.
Speaking to ENCA, Nedbank chief economist Nicky Weimar said that the bank forsees at least two more 25 basis point rate hikes within the first half of 2023, with interest rates likely to peak in March and possibly stay at that level.
Weimar said that during the course of last year, inflation gradually decreased to 7%. The recent petrol and diesel price this month has bought it down to 6.8%. However, this is still far too high and sits outside of the Reserve Bank’s target range of 3% to 6%.
Motorists given some relief this week with a substantial drop in fuel prices on Wednesday (4 January). Petrol came down R2.06 per litre overnight, and diesel saw a similar decrease of R2.81.
In late November 2022, the central bank told economists that it needs to see consumer inflation decline steadily to the 4.5% mid-point of its targeted range before considering pausing or stopping the current rate cycle.
The SARB tries to keep inflationary levels stable between 3%-6%. However, 4.5% is its primary target, whereby rates may start to ease.
If consumer inflation comes down really quickly, rates could maybe see a cut next year (2024), Weimar said.
The rand being affected by possible US Federal Reserve rate hikes will also create currency uncertainty, giving little room for domestic rates to be lightened, she said.
The two possible hikes predicted by Nedbank come off the back of a series of rate hikes by the SARB in 2022, as the bank tried to keep inflation under control during a turbulent time in global markets.
The latest 75 basis point hike in November saw the repo rate be taken to 7.00% and the prime lending rate to 10.50%.
According to the Bureau for Economic Research (BER), actions by the SARB indicate that the policy rate will likely be taken up again by 25bps at its first meeting of 2023 – scheduled for 26 January 2023 – taking it to 7.25%.
As a result, the central bank’s stance may cause financial strain for consumers with debt for an extended period.
If the rand were to strengthen and oil became less costly for a sustained period, the rate of South African inflation would come down fast, said the BER.
Reserve Bank governor Lesetja Kganyago said that another factor that could slow interest rates is if the government were to stick with its plan to reduce debt.
“Stabilizing debt reduces risk and allows for lower interest rates across the yield curve. It would also avert fiscal dominance, where central banks lose the ability to protect the value of the currency because of fiscal failure,” Kganyago said.
Fiscal decisions by the National Treasury interplay with the monetary policy directives of the Reserve Bank. The governor said that the Treasury’s decisions should not contradict the central bank’s goals.
For 2023, the central bank has also revised its forecast for global economic growth to 1.9% and now expects the domestic economy to grow by 1.8% this year. GDP is expected to expand by 1.1% in 2023, 1.4% in 2024 and 1.5% in 2025 – lower than all previous predictions.
Read: SARS is stepping up its game in 2023 – what you need to know