The South African Reserve Bank (Sarb) is set to increase rates once again this week. The only question is by how much.
Domestic consumer inflation may or may not be peaking, but the South African Reserve Bank is not taking any chances. It’s a given that its Monetary Policy Committee will increase rates again on Thursday when its bi-monthly meeting wraps up. The only question is by how much.
“Price stability remains the Sarb’s primary objective; policy will be forward-looking, and with increased pressure on the South African rand from accelerated DM [developed market] tightening, we expect the Sarb to deliver another 75 basis-point rate hike, as it did in July,” Razia Khan, the chief Africa economist at Standard Chartered Bank in London, said in a research note.
“With July CPI printing 7.8%, and likely to rise above 8.0% for the duration of this year, in our view; and with the repo rate currently at 5.5%, the Sarb may not want to risk policy becoming even more accommodative in real terms,” Khan said.One key concern for the Sarb is the rand, which is currently near over two-year lows above 17/$. The rand at the moment does not have a lot going for it.
The bottom line is that South Africa is exporting more capital than it is importing at the moment, which is never good for the rand. Its lifeline of last resort is a credible, inflation-targeting central bank which does not hesitate to tighten or pursue “normalisation”, to use the jargon of the day. And the Sarb under no-nonsense Governor Lesetja Kganyago fits that bill.
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