Old Mutual Wealth expects the SARB to increase rates by 25 basis points at all its MPC meetings in 2022

The SA Reserve Bank’s Monetary Policy Committee faces rising inflation on the one hand with recent further gains in oil prices risking a breach of the upper end of its inflation target. On the other hand, the economy is still quite weak. Employment is far from recovering, unlike in the US and elsewhere. Also unlike the US, there is little evidence of demand-led inflation. Inflation pressures instead stem largely from exogenous factors – global fuel and food prices and regulated utility tariffs.

There is also the backdrop of the US Federal Reserve getting ready to start its hiking cycle. All emerging central banks are on notice when the Fed hikes and some have already increased rates aggressively.

Fortunately, the MPC can afford to raise rates gradually with around four 25 basis points increases this year, starting today. So far the rand has been well behaved in the face of global risk aversion, and underlying or core inflation is much lower than the headline rate.