SARB to keep foot on the pedal with three more rate hikes anticipated in 2022

• Panel unanimously forecasts SARB will increase the repo rate on March 24
• 67% of panellists predict SARB will hike the rate at least two more times after March
• Repo rate to reach 5% by end of 2022

The SARB’s Monetary Policy Committee is set to increase the repo rate at the March 24 meeting, according to a unanimous forecast by 18 economists, academics, and property specialists polled for Finder.com’s SARB Repo Rate Forecast Report.

The majority of panellists expect the rate will increase by 25 basis points, while three say the rate will increase by 50 basis points.

Standard Bank SA head of economic research Elna Moolman and University of the Free State associate professor Johan Coetzee both think the rate will increase by 25 bps.

“The SARB wants to normalise interest rates after aggressive easing early during the pandemic and it wants to ensure that inflation expectations remain anchored despite sharp increases in food and fuel prices. However, it is also mindful of the fragility of the economic recovery,” Moolman said.

Coetzee adds that the threat of war in a post-pandemic environment is likely to exacerbate inflation.

“Besides supply side pressures ramping up inflationary pressure, the Russia/Ukraine situation will undoubtedly speed up the rate at which it increases, especially driven by potentially record-high oil prices and a weaker currency,” he said.

Amidst global economic uncertainty, 67% of panellists predict the SARB will increase the rate at least two more times following the March decision, with 17% expecting as many as four increases after March.

However the remaining 28% say the March hike will be the last for 2022 and 6% think the rate will increase just once more.

BNP Paribas chief economist Jeff Schultz expects four more rate hikes after March. He says the SARB will “keep its foot on the hiking pedal throughout 2022 and H1 2023 as global supply-side inflation pressures look set to push inflation well above its 4.5% target midpoint.”

While the majority of panellists expect several rate hikes this year, it’s likely to be increased incrementally. The panel forecasts the repo rate will be at 5% by the end of 2022 - one percentage point higher than the current rate.

Oxford Economics Africa economist Jee-A van der Linde expects the rate will increase three more times in 2022 after the March hike and gave an end of year prediction on par with the panel average. He says the SARB is taking a cautionary approach.

“Growing downside risks to South Africa’s economic outlook favour a cautious approach to rate hikes. Overall, the war in Ukraine is expected to temper monetary tightening plans for advanced economy central banks despite greater inflationary pressures.”

STANLIB economist Ndivhuho Netshitenzhe thinks there’ll be two more rate hikes following the next decision and gave a slightly lower EOY prediction of 4.75%, but agrees with van der Linde that rate hikes in South Africa should be done conservatively.

“The upside risks to inflation, together with a more aggressive unwinding of the highly accommodative monetary policy in the US will, mostly likely, inspire the SA Reserve Bank to keep hiking rates in 2022. But they should remain gradual in their approach given the ongoing uncertainty.”

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