South Africans are likely to experience another interest rate hike in March 2023 but that should be the last hike for the year with rates expected to start falling from September.
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“Senior Economist at Absa Corporate and Investment Banking (CIB) Peter Worthington said SA’s real repo rate is now above consumer price inflation. The Monetary Policy Committee (MPC) looks at the real repo rate when making its decision, not the nominal rate,” reports News24.
Worthington added that the economy’s inflation will be just above the midpoint of the SA Reserve Bank’s (SARB) target range in the second half of 2023, with consumer price index inflation expected to peak by then.
“This affects our monetary policy call such that we think that the 25-basis-point hike that SARB did in January (…) was the final one.”
Absa is predicting two interest rate cuts of 25 basis points each this year, in September and November.
Worthington said, “We have been pencilling them in to start in September, but only 50 basis points of cuts. Our domestic fundamentals suggest that we could cut in September, and I don’t think that we necessarily need the Fed to cut before us.
Worthington added that the Federal Reserve System (Fed) would need to change its hawkish stance and put interest rate hikes on hold, if the Fed continues to hike rates, and “our MPC might not be comfortable to start cutting rates either”.
“In addition, because SA’s current account has returned to a deficit position, the rand will have to do most of the work to get the country to a position where it can cut interest rates. But the rand has been under strain this year,” reports News24.
Head of fixed income and currency research at Absa, Michael Keenan, said, “Risky assets, such as the rand are going to struggle. And then on top of that, we’ve got our own idiosyncratic concerns, which really come down to our growth outlook and our growth potential.”
“Absa is forecasting SA’s GDP to grow by 0.7% in 2023, closer to the 0.3% that the SARB in its November 2022 MPC meeting.”
“Meanwhile, the International Monetary Fund (IMF) and Standard Bank have more optimistic projections. The IMF expects SA’s economy to grow by 1.2% this year, and Standard Bank is hoping for 1.3% growth.”
“Absa revised its GDP projections downward from 1.6%. Worthington said if there was no load shedding at all, Absa would have been forecasting 2.3% growth for 2023.”
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