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South African Reserve Bank repo rate forecast report September 2022

100% of panellists think the MPC will increase the repo rate at the September meeting.

Key findings

  • 100% of Finder’s panel anticipate a rate increase at the September MPC meeting.
  • Half of the panel think there will be a 50bps increase.
  • 78% of panellists expect the rate to increase again in November.

The next MPC meeting

The SARB’s Monetary Policy Committee (MPC) is expected to increase the repo rate at the September meeting, according to a unanimous prediction by economists and property specialists on Finder’s SARB repo rate forecast panel.

Half (50%) of Finder’s panel think the rate will increase by 50bps, another 44% think it’ll rise as much as 75bps, while 1 panellist predicts just a 25bps increase.

However, the majority (67%) of panellists think the SARB should increase the rate by 50bps and just over a quarter (28%) say there should be a 75bps increase. The remaining panel member says the rate should hold.

Oxford Economics Africa economist Jee-A van der Linde thinks the SARB will and should increase the rate by 50bps due to high inflation.

“Consumer price inflation likely reached peak levels in July, but the SARB will want to see further evidence of that. With inflation set to remain (stubbornly) sticky at elevated levels, the MPC is to continue its fight against inflation with sequential interest rate hikes over the coming meetings.”

Standard Bank head of SA macroeconomic research Elna Moolman thinks the SARB will increase the rate by 75bps because “the SARB wants to avoid an inflation spiral at all cost and would therefore rather be pre-emptive in its hiking”.

However, Moolman agrees with van der Linde that a 50bps rate increase should be enough. But with higher headline and core inflation alongside wage increases, she says “the SARB would be reluctant to slow its rate hikes with the real forward-looking policy rate still quite low at this stage”.

On top of inflationary pressures, Antswisa Transaction Advisory Services CEO and chief economist Miyelani Mkhabela says the SARB will increase the rate to remain competitive with other markets.

“We need a competitive repo rate to attract institutional investors to experience a period of growth in order to create business opportunities and job creation. Emerging Markets repo rates are more attractive and South Africa must be at the same competitive repo rates.”

Future rate moves

The rate hikes aren’t expected to end in September, with the majority (78%) of Finder’s panel predicting another rate hike in November 2022. However, fewer panellists predict rate hikes in 2023, with just 39% expecting one in March, another 6% in May and 6% in September.

In fact, one-third (33%) of the panel believe the repo rate will peak in November this cycle. This is slightly higher than the 23% who said the same in the July SARB repo rate report. Meanwhile 33% say the rate won’t peak until March 2023.

Regardless of when this will happen, 33% of panellists believe the rate will peak at 6.5%.

ETM Analytics co-head of financial markets Kieran Siney thinks the rate will peak in March 2023 at 6.5%.

“The domestic credit cycle remains weak, inflation will be more constrained than in many other countries worldwide, growth remains sub-trend, and margin compression remains a theme. The combination implies that the pace of rate hikes will slow; by year-end or the start of 2023, the SARB is expected to pause and assess the effects of all the tightening already implemented.”

On the other hand, EFConsult chief economist Frank Blackmore agrees that the rate will peak at 6.5%, but expects it will happen in November 2022. According to Blackmore, “a lot of the prices that originally were driving the current inflation have eased and are expected to impact local prices in the near future.”

Meanwhile, BankservAfrica head of stakeholder engagements Shergeran Naidoo is part of the minority (11%) who believe the repo rate will peak after the September meeting.

According to Naidoo, the rate will peak at just 6% because “although inflation is at 13-year highs, the SARB’s pre-emptive actions in hiking the repo rate allowed SA to maintain lower inflation levels relative to many other economies.”

Has inflation already peaked?

With the pace of rate hikes forecast to slow next year, the majority (53%) of panellists say inflation peaked at 7.8% in July, with 35% expecting the peak to hit in the coming months. Meanwhile just 12% expect inflation to peak in early 2023.

The risk of recession

SARB is walking a tightrope right now. On the one hand, it needs to increase the rate enough to tame inflation and support markets, but not so much that it causes a recession. Despite successive interest rate hikes this year and another on the cards for 2022, the majority of panellists (69%) don’t think the reserve bank is at risk of causing a recession. However, 31% of panellists do think it’s a risk.

So, just how likely is a recession over the next few years? The panel was almost evenly split on this – 53% of panellists don’t expect a recession between now and 2025. On the other side of the coin, 47% think one is on the cards, with 29% thinking we could see a recession as soon as 2023 and 18% not sure when it will hit.

Strategist at Old Mutual Multi-Managers, Izak Odendaal, thinks South Africa will enter a recession within the next few years, but isn’t sure when.

“All economies experience recessions from time to time, and this is quite normal. South Africa is also very dependent on the global business cycle, and is hugely impacted by swings in global demand, capital flows and commodity prices.

“Our biggest problem is not that we experience recessions but that we don’t grow enough between recessions. SA needs to focus on reforms that will raise the economy’s growth rate and labour absorption potential.”

Meanwhile Miyelani Mkhabela expects a recession in 2023, though he says it can be avoided if inflation is tamed.

“South Africa can avoid recession and achieve a soft landing in 2023 and 2024 by bringing inflation down to an acceptable level; furthermore, the Reserve Bank is expected to expand its forecast and have inflation rate and unemployment rate targeting for economic risk mitigation.”

Meanwhile, Jee-A van der Linde is part of the 53% who thinks South Africa will avoid a recession, but he notes it’s still a possibility.

“Global economic conditions have deteriorated in recent months, and the risk of load shedding remains high and will continue to undermine the South African economy. Elevated inflation and further interest rate hikes should also dampen economic growth. Although a distinct possibility, we believe that a recession will be avoided this year.”

Economic indicators

Across the 5 broad economic indicators, cost of living and household debt are both set to increase over the next 6 months, according to the majority of panellists. However, it’s not all bad news – the majority also expect employment (69%) and wages (81%) to increase.

Despite the panel unanimously expecting the cost of living to increase, the majority (88%) don’t think the government should introduce price controls to ease cost of living pressures.

Nedbank analyst Reezwana Sumad says introducing price controls would be poor government policy and ineffective at addressing the country’s deep-rooted problems.

“… the government should work towards spending its revenue more efficiently, improving the operational capability of municipalities and SOEs, and improving the ease of doing business (ultimately promoting investment). Once these aspects are fixed, administered price inflation will ease, employment will rise and growth will recover – thereby eliminating the need for price controls altogether.”

Associate professor at the University of the Free State Johan Coetzee says the government should not be seen to intervene directly in such a way.

“The market will reach its own level of equilibrium in its own time and coming off the strong intervention during COVID, the market needs some breathing space.”

Investec chief economist Annabel Bishop says the risk remains of a further broadening base of price pressures.

“Components which previously did not see substantial price movements, such as recreation and culture, have joined the strong upwards momentum of prices, which will worry the MPC, increasing upwards pressure on interest rates.”

Meet the panel

Upcoming Monetary Committee meetings for 2022

  • 24 November 2022

Image: Getty

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