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Moody’s forecasts 8% inflation in 2022

Headline inflation in South Africa will rise to about 8% this year, breaching the upper end of the South African Reserve Bank’s target band of 3% to 6%, according to a research report by Moody’s Investors Service published last week.

Moody’s forecast that the SARB will continue to raise the repurchase rate “gradually” but did not provide percentages or timings.

It believed that inflation would fall in 2023 and 2024.

Moody’s said the jump in the oil price has been mitigated by higher prices for South Africa’s key commodity exports, such as iron ore and coal, with the result that the country’s current account balance should remain positive this year.

It forecast that the economy will growth at about 1.5% in 2022/23, “constrained by a rigid labour market, weakening competitiveness and decaying infrastructure”. The electricity sector poses the greatest risks to economic growth prospects.

Moody’s upgraded South Africa’s outlook from “negative” to “stable” in April, keeping the government’s Ba2 rating.

Meanwhile, Anchor Capital said last week that the market seems to be pricing in a 0.5% hike in the repo rate when the Monetary Policy Committee meets on 19 May.

Anchor said the SARB will be justified in hiking rates by 0.5% considering that inflation hit 5.9% in March, the fuel price is likely to increase, and the rand has been volatile recently.

It remained of the view that the repo rate will likely increase to 5.25% by the end of this year and reach 5.75% next year. However, the timing of these hikes remains a little uncertain.

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