MPC likely to increase interest rates: Economists

Economists say it is highly likely that the Reserve Bank’s Monetary Policy Committee will increase interest rates on the back of rising inflation in both local and international markets.

The committee is expected to make its rate announcement on Thursday afternoon.

A Chief Economist at Efficient Group, Dawie Roodt says he expects the Reserve Bank to increase rates to help cushion middle and low income countries from the impact of rising rates in developed economies.

Roodt says, “So globally central banks are moving to a more tighter monetary policy stance and in inevitably that is something that will affect South Africa because we are part of the financial markets,” says Roodt.

Roodt says South Africa is expected to eventually follow suit.

“Simply looking from that point of view, we have to follow suit eventually. That means if the Americans start increasing the rate or the Europeans and some of them already have. We will eventually have to start increasing rates as well. But apart from that there a local factor that is also contributing to the reserve bank’s likely decision to increase rates and that is that we are also currently experiencing inflationary pressures in South Africa,” he adds.

The Reserve Bank indicated in 2021 that  South Africa is likely to see at least three interest rate hikes this year, given the acceleration in inflation both locally and globally.

Nedbank Economist, Isaac Meshego says, “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.”

Video: SA Reserve Bank increased rates by 25 basis points in November 2021