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MPC rate hike reaction from EY Africa Chief Economist Angelika Goliger

22 September 2022 EY Africa

EY Africa Chief Economist, Angelika Goliger:

The Monetary Policy Committee’s 75bps point increase brings us back to pre-Covid policy rate levels, with a hawkish tilt in the MPC, with two members opting for a 100bps increase.

Although inflation has come off the boil slightly, dropping to 7.6% in August, it remains high. It will likely be elevated for some time as firms try to make up in margins, and recover the difference between consumer and producer prices (which reached 18.0% in July). The depreciation in the Rand over the past few days was more about a move towards the dollar than shedding the Rand per se. However, a weaker currency adds to the likelihood of inflation remaining stubbornly higher with the cost of imports rising.

The SARB, along with the rest of the world, will be watching the US Fed closely, whose most recent dot plot shows aggressive tightening for the remainder of the year, pricing in 125 bps increase by December 2022. So we can expect further rate increases at the last two MPC meetings for the year, perhaps at a similar pace of the US Fed, if inflation does not cool markedly. This will add further pressure on consumers in the near term while it takes time for the higher interest rates to temper inflation.

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