South Africa’s central bank is expected to fully unwind its extraordinary pandemic-era stimulus measures when it raises interest rates on Thursday.
All economists in a Bloomberg survey expect the five-member monetary policy committee to lift the repurchase rate to 6.25%, from 5.5%. The vote-split prediction leans toward four panelists backing a three-quarter point hike and one for a full percentage point move.
A second straight 75-basis point increase will return the benchmark to its January 2020 level, before stop-start coronavirus-lockdown restrictions weighed on activity. It would also take the key rate well above 5.61% — the level the implied policy path of the central bank’s quarterly projection model, which the MPC uses as a guide, showed for year-end.
Thursday’s decision will come a day after data showed inflation slowed for the first time in seven months. The bank’s call is likely to be driven by price pressures posed by a South African rand that’s weakened more than 10% against the dollar and accelerated monetary policy tightening by the US, including a 75 basis-point rate hike expected on Wednesday.
The world’s central bankers are unleashing the most aggressive tightening of monetary policy in decades to combat the worst global inflation shock in a generation.
While South Africa hasn’t seen the scale of target misses experienced by several of its peers — it prefers to anchor inflation expectations close to the 4.5% midpoint of its target range — sharp rate increases by the likes of the US Federal Reserve and Bank of England risk eroding the differential that makes local assets attractive to foreign investors.
South Africa’s decision will be announced during a virtual televised briefing that starts at 3 p.m. in Pretoria, the capital. Governor Lesetja Kganyago will also give the voting breakdown and updates of the central bank’s economic forecasts, including for inflation, rates and economic growth.
Though the change in the headline consumer-price index breached the central bank’s target ceiling of 6% for a fourth month in August, inflation probably peaked at 7.8% in the prior month, said Annabel Bishop, chief economist at Investec Bank Ltd. Still, the data aren’t “sufficient to show a downwards trend, which is what will be needed to eventually halt rate hikes,” she said.
Kganyago said in a September 8 interview that the MPC must do whatever it takes to get price growth under control and on a downward trajectory toward the midpoint of its inflation-target band. The quantum of future moves remains uncertain however.
Yields on South African benchmark bonds fell four basis points to 10.96% after Wednesday’s inflation data, suggesting that markets are repricing rate-hike expectations.
Forward-rate agreements starting in three months, used to speculate on borrowing costs, slipped 11 basis points and now show traders are pricing in 145 basis points of tightening, including Thursday’s move, this year.
Risks to the economic growth outlook — gross domestic product contracted 0.7% in the second quarter — heightened power outages and an erosion in consumer spending power could affect the interest-rate trajectory.