South African Reserve Bank repo rate forecast report November 2022

The South African Reserve Bank (SARB) has been raising interest rates for most of 2022 to help bring inflation within target range. We asked a panel of 20 economists and academics what they think the SARB’s Monetary Policy Committee (MPC) will do at the November meeting and when they think the inflation rate will fall within target range.

Key findings

The next MPC meeting

The SARB is expected to increase the repo rate at the November MPC meeting, according to the majority (90%) of Finder’s panel.

More than half (55%) of the panellists believe the rate will be increased by 75 bps or more. Another 25% think it will be a 50 bps increase, and 10% a 25 bps increase.

However, when asked what they think the MPC should do at the next meeting, only 35% are in favour of a 75 bps increase or more, while a little under half (45%) say the rate should be hiked by 50 bps.

Oxford Economics economist Jee-A van der Linde says the SARB will and should increase the rate by 75 bps at the November meeting given it will want to see compelling evidence of slowing inflation.

“Assuming a slow pace of disinflation ahead, we forecast a 75 bps increase in the November meeting followed by an additional 50 bps rise in the policy rate in Q1 2023, which will see the repo rate reach 7.5%.”

Old Mutual Multi-Managers strategist Izak Odendaal thinks the rate will and should be increased by 50 bps as the SARB follows the US Federal Reserve’s footsteps.

“The Federal Reserve is likely to start slowing down the pace of increases as US inflation is easing, and is close to the end of its hiking cycle. This takes pressure off the SARB and allows it to focus more on the domestic inflation outlook.

“With core inflation still solidly in the target range, South Africa does not need rates to rise substantially from here. Therefore, the SARB can also slow the pace of hikes, and is also close to the peak of the current cycle,” he said.

Standard Bank head of SA macro research Elna Moolman also thinks the rate will and should increase by 50 basis points, noting this would take the policy rate to the SARB’s estimate of the neutral rate.

“… Further tightening should only be required if a sharper increase in core inflation is underway or inevitable.”

Meanwhile Investec chief economist Annabel Bishop is the only panellist who says the SARB will and should increase the repo rate by 100 bps. In fact, Bishop sees a possibility that the increase may even be higher as the SARB tries to keep up with the rate hikes by the Federal Open Market Committee (FOMC).

“By the end of the year the FOMC will likely have hiked rates by 5.50% in the current cycle, and SA by 4.75%, with the MPC likely to discuss a larger hike than 100 bps in November particularly given the higher end rate now signalled by the FOMC, and so could surprise on the upside. A narrowing interest rate differential between the US and SA leads to rand weakness against the US dollar.”

When will the repo rate peak?

While the majority of panellists anticipate a rate increase in November, just when the rate will peak is up for debate.

According to over a third of panellists (35%), the rate will peak in January 2023. However, 20% say it’ll peak as early as November 2022, another 25% in March 2023, 15% in May 2023 and 5% in September 2023.

Regardless of when it will happen, over a third (35%) of Finder’s panel think the rate will peak at 7.25%. Meanwhile 20% say it will peak at 7% and 20% think at 7.5%.

A number of panellists pointed out that the SARB may likely begin to cut back on the rate hikes to allow the impact of previous rate moves to settle in the economy.

Citadel Global director, Bianca Botes, who predicts the repo rate will peak at 7.25% in March 2023, says the repo rate will likely moderate alongside inflation.

“The SARB acted aggressively in the hiking cycle to ensure inflation does not become entrenched, even as South Africa faced economic headwinds. Data now also points to a moderation in inflation.”

University of the Free State associate professor in banking Johan Coetzee predicts a slightly higher peak of 7.5% in May 2023 as central banks around the world will likely moderate their rate hikes in the second quarter of 2023.

However, Coetzee acknowledges that current global circumstances make this difficult to predict for certain now more than ever.

“What we must always understand is that we are making projections for 2023 in November 2022, based on data prior to November 2023. In a world that is increasingly more volatile with uncertainty around every corner, be it, for example, the geo-politics of Russia/Ukraine or the political uncertainty in South Africa entering an election period in 2024 … I cannot think of a time in the past three decades where making a forecast has been more difficult than is currently the case. There are just too many issues at play that can tip either way.”

Efficient Group chief economist, Dawie Roodt, gave one of the highest forecasts for the rate peak at 8% in March 2023. However, he doesn’t expect the rate to stay this high for long, predicting rate cuts in 2024.

“The sooner we get this over the less we would need to do. When you go through hell, don’t crawl,” he said.

Meanwhile Morgan Stanley senior economist Andrea Masia predicts an early peak of 7% in November 2022:

“We think the magnitude of the 2023 growth slowdown is under-appreciated by the MPC. Together with a stronger ZAR and a final Fed hike in January, we think the SARB will be willing to pause and observe the impact of its earlier actions.”

South Africa’s inflation rate

Inflation is expected to continue to drop this year, with the panel giving an average end-of-2022 forecast of 7%. However, it’s a little while yet until we’ll see inflation fall within the target range of 3–6%. The panel unanimously agrees it will hit the target next year – with some expecting it to happen earlier in 2023 than others. 53% expect inflation to fall as soon as Q2 2023, while 37% expect it to hit the target by Q3 and 11% say it will happen in Q4.

The risk of recession

South Africa is bound for a recession, according to the overwhelming majority of panellists (80%). This is up from just 47% when Finder asked a similar question in September 2022.

1 in 5 (20%) panellists say the recession will hit this year while 2 in 5 (40%) say it will happen in 2023. The other 20% aren’t sure exactly when the recession will eventuate, but they do expect one within the next few years.

Citi economist, head of South Africa Research and CEEMEA Economics, Gina Schoeman, thinks South Africa will enter a recession in 2022.

“Following negative GDP growth in Q2 due to floods and rising inflation, Q3 GDP looks likely to remain negative given high inflation but also severe power outages.”

BNP Paribas chief economist Jeff Schultz says it is a close call if South Africa enters a shallow technical recession between Q2 and Q3, thanks largely to this year’s flooding, strikes and more acute loadshedding.

“It’s not our base case right now for a full blown recession (full year of negative growth) in 2023, though we think that the risk is very real given that a number of SA’s key trading partners in Europe and the US are facing negative annual growth rates next year.

“We see very tepid growth of 0.2% for the SA economy in 2023 which is closer to what we think short-term potential growth is right now given a plethora of structural and global headwinds.”

Meanwhile Tshwane University of Technology professor, Mulatu Fekadu Zerihun, thinks South Africa will enter a recession in 2023 due to the “unfavourable global economic conditions and energy crisis”.

University of the Witwatersrand visiting professor, Jannie Rossouw, agrees the recession will hit next year, noting “economic growth will remain suppressed owing to policy mistakes of the South African government”.

Jawitz Properties CEO, Herschel Jawitz, noted South Africa is in “a high interest rate and low growth environment – stagflation which will force us into a recession alongside other global economies”.

Economic indicators

Across the 5 broad economic indicators, cost of living and household debt will both continue to increase over the next 6 months, according to the majority of panellists (95% each).

The majority (79%) also expect wages to increase; however, just 26% of panellists expect employment to rise with it – a change from Finder’s September survey when 69% expected employment to increase. As of November, nearly a third (32%) expect employment to drop while 42% think it will stay the same.

Bianca Botes from Citadel Global is part of the majority expecting wages to rise, and while she doesn’t see any change to employment over the next six months, this could change in 2023–24.

“We are seeing demand for higher wages in the light of inflation. Households are facing severe pressures from cost of living with unsecured lending offering a tragic way out. We are also seeing a decline in demand for houses, as the affordability of consumers continues to decline. Unemployment however is set to trend towards 36% into 2023, and even lower at 35% in 2024.”
The panel was almost evenly split on whether house prices would go up (28%), down (39%) or stay the same (33%).

Jee-A van der Linde from Oxford Economics thinks household debt will go up, while house prices will fall.

“Considering the cumulative impact [of] interest rate increases and the lags with which monetary policy actions affect economic activity and inflation, indebted households will continue to feel strain. The impact of base effects might see headline inflation come down more swiftly in H2 2023, but consumers will continue to pay high prices.”

Meet the panel

• Methodology

  Finder surveyed 20 economists, academics and property specialists online in Early November 2022

Image: Getty