After a surprise 50bps hike to interest rates this week, economists weigh in on what happens next.
Reserve Bank governor Lesetja Kganyago says that he doesn’t know where the top of the current rate hike cycle is, but economists and analysts believe that it’s close.
However, given the surprise spike in headline inflation for February, as well as worries over rising core inflation, the central bank took a much stronger stab at trying to bring prices under control and has adopted a decidedly hawkish stance on rates going forward. Sanisha Packirisamy, Economist at Momentum Investments, said that South Africa could see the end of the interest rate hike cycle this year, but only if disinflation continues in upcoming quarters to sustainably revert to the midpoint of the target by the fourth quarter of next year, as predicted by the central bank.
Angelika Goliger, EY Africa Chief Economist, said that the MPC has turned back towards hawkishness – the concern of the Committee being the performance of the rand going forward, given higher risk premia, load shedding and stubborn food and fuel inflation. “With the South Africa economy being on the verge of a technical recession, along with double-digit food inflation, inordinately high levels of unemployment, high personal debt burdens, and persistent load-shedding, some leniency is easy to justify,” he said. “Moreover, there is evidence emerging – globally and locally – that inflationary pressures might be softening.”
This would be followed by a sideways movement until the latter part of this year or early next year, when rates could start moving downwards, he said.According to Momentum Investments, interest rate cuts are likely some way off given persistent upside risks to the inflation trajectory, continued interest rate normalisation, globally, and longer-dated local inflation expectations, which remain 1% higher than the midpoint of the 3% to 6% target.
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