Repo rate to rise but one in five think the rate should hold

• 93% of Finder’s panel forecast a rate hike at the January meeting
• 59% think the rate will increase by 50 bps and 33% by 25 bps
• However, nearly one in five (19%) think the MPC should hold the rate
• 48% of the panel think the rate will peak in January, 36% in March

The SARB’s Monetary Policy Committee (MPC) is set to increase the repo rate at the January meeting by 50 bps, according to the majority of panelists on Finder.com’s SARB Repo Rate Forecast Report.

January is likely to be the peak of this interest rate cycle, according to 48% of the panel, with an additional 36% believing the rate will peak in March.

59% think the repo rate will increase by 50 bps in January while 33% are forecasting a 25 bps increase.

However nearly one in five panelists (19%), including Morgan Stanley senior economist Andrea Masia, think the rate should hold. Masia is also part of the 19% who think the SARB raised the rate too aggressively in 2022.

“While risks of a final 50bp hike in the cycle is elevated, we think there is good reason to pause and assess the impact of historical tightening. A stronger FX and lower oil prices create the breathing room to do so,” he said.

Sanlam Investment Management’s head of fixed interest, Mokgatla Madisha, agrees the rate should hold but thinks the SARB will likely raise the rate by 50 bps given central banks are in policy tightening mode.

“...policy acts with a lag and we are yet to see the impact of last year's rate hikes on the economy, furthermore inflation in SA has clearly peaked and with year-end forecasts of inflation close to 5%, the current repo rate of 7% is sufficiently restrictive.”

BNP Paribas chief economist Jeff Schultz disagrees. He thinks the SARB will and should increase the rate by 50 bps at the next decision due to sticky inflation expectations, an arguably more vulnerable currency outlook and the fact that most disinflation is concentrated in fuel prices while core inflation will continue to climb.

“Though the decision is likely to be a close call and split between those advocating for 25bp and those advocating for 50bp, we think that persistently large uncertainties that remain on the domestic inflation outlook will sway the committee to buy itself a bit more insurance and hike 50bp.”

Oxford Economics Africa senior economist Jee-A van der Linde is also backing a 50 bps increase due to the uncertain inflation outlook as well as expectations that the Fed will increase the rate at the next meeting.

“Slow disinflation dynamics imply that the SARB will consider lifting interest rates by another 50 bps in Q1 2023, before pausing. International oil prices have come down in recent months and the local currency has strengthened thanks to a softer US dollar.”

A third of the panel (33%), including Nedbank economist Liandra da Silva think the SARB will take the middle road and are forecasting a 25 bps increase.

“We expect the SARB to raise interest rates by 25 basis points at each of the first two meetings in 2023 following an aggressive policy filled 2022…We expect inflation to fall within target in the first half of 2023, providing justification for a less aggressive policy path. However, should inflation prove stickier than expected, the SARB could remain hawkish and lift interest rates by higher than we expect.”

ETM Analytics co-head of financial markets Kieran Siney agrees.

“...we are of the view that a cumulative 50bps worth of rate hikes is appropriate in Q1. Our base case is for a 25bps hike at the January meeting and 25bps in March. The risk to our outlook is 50bps hike in January and a hold or possibly one final 25bps hike in March should inflation pressures intensify in the first three months of 2023.”

The majority of the panel (57%) think the rate will increase again in March while 43% believe it will hold.

However, according to the panel we won’t have to wait long for a hold decision with nearly three quarters (72%) forecasting a hold in May and 94% a hold in July.

The repo rate could actually start decreasing as soon as September, according to 17% of panelists. The panel is 50-50 on whether the rate will decrease or hold in in the first half of 2024 with the majority backing rate decreases in the second half of 2024 (67% decrease vs 33% hold).

You can view the full report here: https://www.finder.com/za/sarb-repo-rate-forecast