The focus this week will be on the SA Reserve Bank’s monetary policy committee (MPC) which sits on Tuesday and will deliver the interest rate decision on Thursday.
According to January’s Thomson Reuters Econometer poll, the median consensus forecast is for a 50 basis point (bps) hike with 11 out of 20 analysts expecting that, eight expecting a 25 bps hike and one forecasting no change.
Borrowing costs have increased by 350 bps since the start of the rate-hiking cycle in November 2021.
In 2022 there were three consecutive 75 bps hikes, the largest increases in two decades, after accelerating inflation as a result of fuel and food price hikes, as well as the rand losing value in the face of the US Federal Reserve’s hawkish monetary policy stance.
But analysts say hikes are likely to become smaller as inflation slows and the peak of the cycle comes into view.
This was captured in the latest consumer inflation numbers released last week, showing headline inflation eased to 7.2% in December, down from November’s 7.4%, and marking a further slowdown from 7.6% in October and the peak of 7.8% in July.
Core inflation, which excludes short-term price shocks, also declined in December, falling to 4.9% from 5%. While analysts agree that inflation may have reached its peak and is now on a downward trend, the rate remains above the upper limit of the Reserve Bank’s 3%-6% target range.
In an interview with CNBC Africa in Davos last week, Bank governor Lesetja Kganyago said the Bank remains “worried” about inflation.
Kganyago said at 7%, the repo rate remains below the SA inflation rate of 7.4% in November and 7.2% in December, making rates negative in real terms.
Economists say the National Energy Regulatory of SA’s approval of the 18.65% increase in electricity tariffs for the next financial year will also have inflationary implications down the line and will form part of MPC’s deliberations.
As a result, FNB and Investec said the Reserve Bank is likely to raise rates by 50 bps on Thursday, leaving rates at a peak of 7.5%.
Investec’s Lara Hodes said “a more moderate” 50 bps hike was in line with the US Fed’s December move.
Absa changed their January rate hike call from a 50 bps to a 25 bps, pushing the repo rate to 7.25%.
“Below-expectation SA inflation, a stable exchange rate, lower fuel prices, moderating food prices, as well as some evidence that global inflationary pressures may have peaked are various developments since the last Bank’s MPC meeting that led us to trim our forecast,” Absa chief economist Peter Worthington said in a note.
Other indicators this week include the Bank’s leading business cycle indicator for November and December’s producer price index.
The Bank will on Tuesday release the leading business cycle indicator for November. The indicator offers a projection of SA’s economic growth cycle for the next 6-12 months. The leading business cycle indicator was 123.0 points in October, reflecting a 0.9% monthly decline and was 1.9% lower than a year ago. This is consistent with an elevated risk of subdued GDP growth outcomes and a highly uncertain environment for economic predictions, FNB said.
Stats SA data will publish data on producer inflation for December on Thursday. The producer price index (PPI) came in cooler for the fourth straight month in November at 15% and beating market expectations of 15.7%, and October’s 16%. PPI measures changes in the prices of goods bought and sold by manufacturers, and is considered a key indicator of future consumer inflation. Investec forecasts PPI to ease to 13.9% year on year in December, indicating the continued easing of supply chain pressures on the system and which is encouraging for manufacturers.
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