MPC expected to increase interest rates: Economists

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Economists say the Reserve Bank is likely to increase interest rates during its Monetary Policy Committee meeting next week. They expect the Consumer Price Inflation (CPI) data to breach the upper end of the Reserve Bank’s targeted range of 6%.

The South African Reserve Bank uses inflation targeting to protect the value of the Rand. Its inflation target ranges between 3 and 6%.

Inflation is expected at 5. 8 % up from 5.5 % in the last quarter of 2021.

Economists predict higher inflation numbers to be realised this week. Stats SA will release December 2021 CPI data and analysts expect inflation to be driven by increases in petrol and food prices.

The Reserve Bank indicated last year that we are likely to see at least three interest rate hikes this year, given the acceleration in inflation both locally and globally.

“We expect inflation to rise higher at 5.7 % from 5.5% in November, that will push inflation rate for the year as a whole to 4.5 % although 4.5 % is right in the middle of the Reserves Bank 3 to 6 % target range. The Reserve Bank is more concerned about the inflation outlook and the monthly inflation rates. The Reserve Bank is likely to increase interest rates further when it meets next week,” says Nedbank Economist Isaac Meshego.

He says they expect better retail numbers: 

Chief Economist at Investec, Annabel Bishop says, “The December CPI numbers are expected to see a lift of 5.6% and the upward pressure has come from fuel price over 2021. The rand is also in a bit of weakness but the majority of the upward pressure is from the fuel price component which has definitely resulted in higher inflation and will have an impact on consumers going forward.”

Meanwhile, retail sales numbers for November 2021 are also expected to be released this week. The market expects better retail sales numbers mainly driven by Black Friday promotions.

“We expect slightly better numbers on the back of higher Black Friday sales. We are looking at a rate of 2.2% year-on-year for November which will be up from 1.8% in October. But overall consumer spending remained under pressure due to the erosion of consumer incomes as a result of rising inflation.”