The South African Reserve Bank (SARB) is expected to increase the repo rate at the next MPC meeting, according to 95% of the Finder’s panel of experts.
The panel comprises of 22 economists, property specialists and academics who were asked what they think the SARB’s MPC will do at the March meeting and how high the repo rate will go in 2023 to compile Finder.com’s SARB Repo Rate Forecast Report.
According to the report published on Friday, roughly three-quarters of the panel (77%) thought the rate would increase by 25 basis points (bps), while 14% said the rate would increase by as much as 50bps and another 5% by just 10bps. However, nearly a third (32%) of panellists thought the rate should hold.
A number of panellists, including BNP Paribas chief economist, Jeff Schultz, attribute their rate hike predictions to inflation. Schultz thought the SARB would and should increase the rate by 25bps at the March meeting because “high and sticky inflation and inflation expectations means that we think the SARB still has more work to do in ensuring inflation comes back sustainably towards its preferred 4.5% midpoint target.”
Old Mutual Wealth strategist Izak Odendaal concurred that the SARB would hike the rate by 25bps but believed that the rate should hold.
“Despite the recent turmoil in the US banking system, the Federal Reserve is likely to continue raising rates in the face of persistent inflationary pressures and labour market imbalances. Faced with this further upward pressure on US interest rates, the MPC is likely to respond with a 25bps hike,” Odendaal said.
He added that the main reason was that the MPC would take out insurance against further disorderly rand declines. “However, the economy does not need higher rates as domestic inflation pressures are largely supply-related.”
Meanwhile, Wits Business School visiting professor Jannie Rossouw thought a bigger hike was warranted. He predicted the SARB would and should increase the rate by 50bps. “Inflation expectations should be contained to reduce domestic inflation to the midpoint of the inflation target range in a reasonable period of time.”
Despite being close to unanimous in their forecasts for the March MPC meeting, the panellists were more divided in their forecast for the May meeting. Some 62% of Finder’s panel, including Standard Bank head of SA macroeconomic research, Elna Moolman, predicted that the SARB would hold the rate come the May MPC meeting.
“We expect the SARB to hike the repo rate by 25bps at the upcoming meeting, mainly owing to the bank’s likely concern about the inflationary impact of the rand’s depreciation since January. This should be the end of the interest rate hiking cycle, given that wage and services inflation remain contained and growth weak,” Moolman said.
However, the remaining 38% of panellists thought the SARB would increase the rate in the May MPC meeting.
Efficient Group chief economist Dawie Roodt was part of those who predicted rate increases for both the March and May meetings. “We are getting closer to the upper end of the CPI and interest rate cycle, and small increments should suffice,” Roodt said.
Come July, the majority (90%) of the panel predicted the SARB would be holding the interest rate, with over a quarter (29%) predicting rate cuts to happen by November. The rate was likely to taper off next year, with 57% predicting a rate cut in the first half of the year and 52% in the second half of the year.
With the May decision a toss-up between a rate hold and a hike, the panel was equally divided on their forecast for when the rate would peak. Just over half (55%) of the panellists believe March will be the peak of this rate cycle.
Meanwhile, over a fifth (23%) believed it would peak in May, and 18% think the rate would peak at some point in the latter half of this year or the first half of 2024. Only one panellist, PwC South Africa senior economist Christie Viljoen, thought the rate already peaked in January.
Across the five broad economic indicators, household debt and cost of living were both set to increase over the next six months, according to 71% of panellists. However, the percentage of panellists who expected an increase in these metrics had dropped since Finder’s January 2023 survey, when 88% and 84% of panellists thought they would increase, respectively, over the coming months.
With rising interest rates, research suggested it was now cheaper to rent than buy property. The majority (88%) of Finder’s panel thought this would lead to a decline in first-time home buyers entering the market.
BUSINESS REPORT