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South African Reserve Bank repo rate forecast report July 2022

88% of the panel believe that the MPC will increase the repo rate at the July meeting.

Key findings

  • 88% of Finder’s panel anticipate a rate increase at the July MPC meeting.
  • The majority of panellists think there will and should be a 50 bps increase in July.
  • Repo rate to end the year at 5.75%, inflation at 6.5%.

The next MPC meeting

The SARB’s Monetary Policy Committee (MPC) is set to increase the repo rate in July, according to the majority (88%) of the 26 economists and property specialists on Finder’s SARB repo rate forecast panel.

Nearly three-quarters (73%) of the panel believe that the MPC will increase the rate by 50 bps, while 12% think it will increase by 25 bps and 4% think it will increase by 75 bps. Meanwhile, 8% think it will drop by 25 bps and 4% think the rate will hold.

Several panellists, including Stellenbosch University COO and professor of economics Stan du Plessis, say rising consumer inflation means the SARB will and should increase the rate.

“Inflationary pressure has risen faster than we had previously thought. In addition, the international capital market shock risk is greater than before due to the Fed’s rapid normalisation of its policy rate. The SARB cannot afford to fall behind the curve.”

Chief economist at Investec Annabel Bishop says the US interest rate hike increases the likelihood of a 50 bps hike at the July meeting.

“Currently, we continue to expect a 50bp lift in SA’s repo rate from the MPC in July, with the SARB likely to follow the direction, but not necessarily the exact moves of the FOMC, which has hiked in consecutive 25bp, 50bp and 75bp tranches so far this year.”

BNP Paribas chief economist Jeff Schultz agrees the SARB will and should hike the rate in July but thinks an increase of 75 bps is needed.

“With headline inflation likely to head north of 7.0% from June and with the SARB’s primary mandate of price stability, the SARB is likely to act more decisively to nip rising inflation and inflation expectations in the bud sooner rather than later in order to avoid a larger inflation problem down the line which could necessitate even bolder, more economically damaging policy action.”

Future rate moves

Over a third (38%) of the panel believe there will be 3 more rate increases in 2022, inclusive of the July decision. Meanwhile, 35% say there will be 2 rate increases, 23% predict just 1 increase and 1 panellist says there will be none. On average, the panel expects the repo rate will be 5.75% by the end of the year on the rounded average.

Oxford Economics Africa economist Jee-A van de Linde predicts 3 rate increases before the end of 2022:

“The upside surprise in the May CPI inflation print means that the South African Reserve Bank (SARB) will hike the repo rate by 50 bps during its upcoming policy meeting in July, with more frontloading likely to follow, but the repo rate should remain below neutral levels at least until 2023.”

ETM Analytics co-head of financial markets Kieran Siney predicts continuous rate increases from July until the first half of 2023.

“While underlying inflation pressures remain contained, the SARB will have to continue hiking rates aggressively to rein in inflation expectations and to keep SA’s monetary policy differential with the US. Failure to do so could trigger increased portfolio outflows, adding further pressure to the rand.”

PwC South Africa senior economist Christie Viljoen expects the rate will increase several times over the next few years as monetary policy normalises to pre-COVID levels.

When will the repo rate hit its peak?

23% think the rate will peak by November while 15% say the rate will peak in the first half of 2023 and 35% in the second half. However nearly a quarter of panellists don’t think we’ll see the top of the cycle until 2024 or later.

The panel was also divided on how high the repo rate will be at its peak, with no clear majority – 1 in 5 panellists think it will peak at 5.75%, 6.25% and 6.5%.

Standard Bank head of SA macro research Dr Elna Moolman predicts the repo rate will peak at 6.25% but says this won’t be until 2024 or later.

“The SARB, like many other central banks, wants to ensure that inflation remains contained amid stronger economic growth and various supply constraints and shocks. The SARB will likely continue to favour a pre-emptive approach.”

On the other hand, Siney predicts the rate will peak at 6.5% and says it will happen much sooner – he predicts by the first half of 2023.

“Given SA’s weak economic outlook and expectations for inflation to peak in the next few months, we see it as imprudent for the SARB to raise interest rates into restrictive territory in the current cycle.”

Economic sentiment

Despite GDP growing by 1.9% in the first quarter of 2022 and therefore returning to pre-COVID-19 levels, the overwhelming majority (81%) of Finder’s experts are either neutral or pessimistic about the growth of the South African economy over the next 12 months.

Taalnet Institute economist Christopher Masunda holds a very pessimistic outlook for the economy, pointing to several pressure points on the energy market.

“Growth will likely remain constrained in the dusk of electricity load shedding and fuel supply chain challenges to Russia-Ukraine conflicts. The possibility of a mishap at Eskom in the near term is quite limited. We should expect an extended snail growth for some years to come.”

Independent economist at Carpe Diem Research Services Elize Kruger holds a pessimistic outlook, noting cost of living pressures.

“Higher cost of living and higher interest rates will hamper consumer spending, while load shedding will place a general ceiling on any economic momentum.”

This sentiment was also reflected in the panel’s outlook across the 5 broad economic indicators, with an overwhelming majority of economists (92%) holding a negative outlook on the cost of living.

In addition, nearly half the panel (46%) hold a negative outlook on employment. Despite the unemployment rate recently dropping to 34.5%, almost half of the panel (48%) believe that it will increase again by the end of 2022. In fact, 1 in 5 panellists (22%) go as far as to say the unemployment rate will be at 36% or higher by the end of the year.

Inflation

Despite the panel’s generally pessimistic outlook on the economy, the majority of panellists think inflation will stabilise in 2022 before tapering off in 2023. On average, they expect inflation will be at 6.5% by the end of this year before dropping to 6.1% in the first half of 2023 and to 5.4% in the second half of 2023.

Stan du Plessis’s forecast is in line with the panel average, noting that “… part of the current inflationary pressure is due to supply shocks that I expect to dissipate over the next 12 months.”

With a forecast that inflation will be at just 5.5% by the end of this year, Citadel Global executive director Bianca Botes comes in at the lower end of the panel average.

“The current rate hiking cycle, coupled with a slowdown in economic activity should assist in bringing inflation down over the next few months.”

Basic income grant

Continuing extensions of the COVID-19 social relief grants is leading to calls for South Africa to introduce a basic income grant. Finder’s panel was evenly split on whether the government would introduce a basic income grant, with 50% in either camp. However, a slight majority (58%) don’t think the government should introduce such a grant.

Many of those who aren’t in favour of a basic income grant concede that support is needed but that the government simply can’t afford to introduce these relief packages.

University of the Free State associate professor in banking Johan Coetzee doesn’t think the government will or should introduce the grant due to budgetary constraints.

Old Mutual Multi-Managers strategist Izak Odendaal agrees but thinks other measures should be explored.

“The country cannot afford a BIG but should look at other ways of expanding the social safety net. The number one priority should be expanding employment.”

Kieran Siney thinks the grant will and should be introduced, but says there are arguments both for and against the initiative.

“Given SA’s social crisis and the fact that a large portion of the population is unemployed, there is no doubt that poor South Africans require social support. However, this will come as a burden to the government’s fiscus … A basic income grant doesn’t however solve the unemployment problem, which should be the government’s primary focus.”

South Africa’s property market

South Africa’s main urban centres are set to see an increase in property prices over the next 6 months. On average, Cape Town and Thembisa are expected to increase by 3%, while cities like Johannesburg and Soweto will increase by a modest 2%.

Total residential property sales grew by 21.4% in 2021, according to recent data from Lightstone. And it looks as if this trend will continue in 2022 with more than half of the panel (55%) expecting property sales to continue growing through the year.

However, the majority of panellists (63%) think the number of sales due to financial pressure will also increase by the end of the year. In addition, the overwhelming majority (86%) of the experts believe it’s likely that further repo rate rises will put more households in mortgage stress.

Meet the panel

Upcoming Monetary Committee meetings for 2022

  • 22 September 2022
  • 24 November 2022

Image: Getty

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