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It’s almost a foregone conclusion the cost of borrowing will increase once more as the SA Reserve Bank (SARB) is forecast to follow the US Federal Reserve (Fed) and raise its benchmark lending rate.
The raging debate among many economists, however, is whether this will be the central bank’s last rate hike in the current cycle.
The SARB’s Monetary Policy Committee (MPC) will this week announce its second interest rates decision this year, after raising rates by 25 basis points in January, in a split decision.
The January hike was the eighth consecutive increase since November 2021, taking the repo rate from 3.5% at that time to the current 7.25%, with the prime lending rate at 10.75%.
This comes after headline consumer price inflation (CPI) remained stubborn and edged higher, from 6.9% to 7.0% in February, driven up by food and non-alcoholic beverages on top of load shedding woes.
A majority of economists surveyed by Finder.com said the MPC will increase the repurchase rate (repo rate), with 77% forecasting a 25 basis points increase, while 14% forecast a 50 basis points increase.
However, according to the findings, released on Friday, the panel was divided on whether or not this will be the rate peak
At least 55% of panellists expected March to be the peak of this rate cycle, while 23% think the rate will peak in May and an additional 18% expect the peak to hit later this year or early next year.
Oxford Economics Africa senior economist Jee-A van der Linde said the rate would increase once more in March, but it was a tight call on whether or not to hold.
“Headline inflation is still above target, and the rand has come under renewed pressure against the US dollar. Regardless, it should be a tight call,” Van der Linde said.
“We expect the apex bank will wrap up the current hiking cycle with a final 25 basis points rate increase, which should help to take the edge off inflation.”
In January, the SARB said the revised repo rate remained supportive of credit demand in the near term, while raising rates to levels more consistent with the current view of inflation and risks to it.
The aim of the policy is to anchor inflation expectations more firmly around the midpoint of the 3% to 6% target band, and to increase confidence of attaining the inflation target sustainably over time.
Efficient Group chief economist Dawie Roodt agreed the rate would and should increase by 25 basis points in March, but said he expected one more rate increase in May.
“We are getting closer to the upper end of the CPI and interest rate cycle, and small increments should suffice,” Roodt said.
The further rise of interest rates spells additional financial difficulty for debt-strapped consumers as their loan repayments increase, eating away at their disposable cash.
A financial sector outlook study by the Financial Sector Conduct Authority revealed that over half of South Africa’s credit-active consumers are over-indebted.
Momentum Investments head of financial planning and advice Bertie Nel said while interest rate increases might benefit investors, it had a dire impact on many South African households.
“Interest rate increases also increase the cost of borrowing for consumers, making it more difficult for them to repay debt,” Nel said.
“These increases have a substantial and tangible effect on the average South African’s pocket, with credit card debt being a primary burden and a cause for concern in a country laden with debt.”
Meanwhile, at least 32% of surveyed economists, including BankservAfrica head of stakeholder engagements Shergeran Naidoo, think the rate should hold at the March meeting.
“Consumers are under pressure with the high interest rates. Although CPI is decreasing, it’s not at the rate that the SARB would like, and is still outside the 3% to 6% range,” Naidoo said.
Associate Professor at the University of Cape Town, Sean Gossel agreed the rate should hold in March.
Gossel said current economic pressures could tip the bank into acting with more caution than necessary.
“South Africa still faces inflation risks as a result of the deteriorating domestic economy, grey listing, current account deficit and likely recession, coupled with international pressures arising from good jobs data in the US,” Gossel said.
“It is likely that SA is at the top of the interest rate cycle, but these pressures may tip the central bank’s hand to overcaution.”
