Analysts predict 25 basis points rate hike

Analysts are forecasting the South African Reserve Bank’s Monetary Policy Committee (MPC) to raise interest rates by 0.25% during their decision announcement on Wednesday. This projected increase stems from inflationary pressures and the ongoing uncertainty caused by the US-Iran war. Inflation stands at 4.3%, surpassing the bank's 3% target rate, while the policy rate currently sits at 7%, and the prime lending rate is recorded at 10.5%.

The anticipated rate hike is backed by soaring Brent crude oil prices, which peaked over $120 per barrel earlier this month due to heightened Middle East tensions. Elna Moolman, Head of Macroeconomics, Fixed Income, and Currency Research at Standard Bank, notes that South Africa has felt the effects through higher fuel inflation. While second-round economic impacts have not yet been observed, Moolman stresses that if fuel costs remain elevated, the Reserve Bank may feel compelled to hike interest rates once more.

Inflationary pressures and supply shocks have prompted several central banks worldwide to tighten monetary policy this month. Makwe Masilela, from Makwe Fund Managers, points out that South Africa's consumer inflation is at 4.3%, which indicates that inflationary pressures might continue to rise. Moreover, most of South Africa's trading partners have also begun raising their interest rates.

The Reserve Bank is expected to follow the US Federal Reserve Bank, which increased rates by 0.25% for the first time in three years, and the Bank of Japan, which raised rates by 25 basis points for the first time in over thirty years.