Prepare for two massive repo rate hikes, says commercial bank

The South African Reserve Bank (SARB) will hike the repo rate by 75 basis points in both July and September – well above the consensus expectation, according to international banking group BNP Paribas.

The headline Consumer Price Index (CPI) came in at 6.5% year-on-year in May – compared to the expected 6.1% – a five-year high.

May’s inflation “surprise” and the prospect of continued sharp hikes by the US Federal Reserve point to a 75bp hike when the Monetary Policy Committee (MPC) meets on 21 July, compared to its long-held forecast of a 50bp move, Jeff Schultz, senior economist at BNP Paribas South Africa, said. This will take the repo rate to 5.5%.

BNP Paribas expects another 75bp hike at the September meeting before the SARB shifts down to 50bp in November and 25bp in January, Schultz said. If this forecast holds, the repo rate will be 7% by January next year.

“With inflation seen as the main threat to the economy, we think that most members of the MPC are likely to favour raising rates to a neutral real level as quickly as possible to prevent a further rise in inflation expectations.”

He said BNP Paribas has raised its above-consensus inflation forecasts as a result of increases in food prices and because it expects that inflation will be slow to fall in 2023. It expects CPI to average 6.8% this year and 5.7% next year.

The SARB is unlikely to bring the inflation rate down to 4.5%, the midpoint of its target range, until the second half of 2024 Schultz said.

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One Response to Prepare for two massive repo rate hikes, says commercial bank

  1. andre 27 June 2022 at 2:11 pm #

    Voters, say goodbye to the ANC. Everybody understands the reasons for the hike in Interest rates, but not at these rates- i know that the Amercan Federal reserve increased recently by ,75 %, but that is where they stop.

    The ANC has NO idea of how to run an aconomy,, Goodbye ANC

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