SARB likely to further hike repo rate by 25bp in July

The South African central bank maintained the repo rate at 7% last week. Majority of economists polled by Reuters and Bloomberg had anticipated the central bank to keep rate on hold. The central bank stated clearly that that it sees certain space to halt the tightening cycle and that it did not mean the end of raising rates.

The SARB directed towards a slightly recovered medium term outlook of headline CPI inflation because of higher interest rate assumption, likelihood of limited depreciation, broader gap in output and anticipation of lower price of electricity, partially countered by increased oil and food prices.

But the central bank’s core CPI inflation projections remain the same for 2017 and 2018. The projections of SARB continue to look to “a four-quarter breach of target starting in Q3 16”, said Barclays in a research report.

With the central bank’s view that the rate raising cycle has to be continued further, and the projection that the SARB will have to revise its inflation forecasts upward in July based on the recent movements of the exchange rate, the central bank is likely to raise rate by 25bp in July, noted Barclays.

“We have pushed out our forecast for rate hikes in the rest of 2017 by one meeting each to 25bp in July and again in November”, added Barclays.