SARB expected to increase interest rates

South Africa’s third monetary policy announcement for the year is expected to take place on Thursday. Year to date, the South African Reserve Bank (SARB) increased the repo rate by 75 (0.75%) basis points. The repo rate in South Africa currently stands at 7.75%.

Fin24 recently reported that asset manager and banking group Investec has warned that South Africa's interest rates are likely to remain elevated for longer than expected as a weaker rand and the risk of sanctions due to Pretoria's support for Russia add pressure on an already weak economy.

"Clearly, the economy in South Africa is under significant strain, given the forecast levels of growth of just 0.2% for 2023," CEO Fani Titi said.

"And the recent deterioration in the rand exchange rate will not help the fight against inflation given some of the unfortunate events around our perceived alignment as a country to Russia, and the possibility that that may lead to a level of sanctions. So we do expect that interest rates will remain higher for longer," he said.

According to Stats SA, inflation stood at 7.1% in March 2023. April’s inflation figures are set to be released tomorrow.

Meanwhile, inflation in Namibia slowed to 6.1% in April from 7.2% recorded March. According to IJG Securities, the steep drop in April’s inflation print to 6.1% is primarily due to base effects in the transport category with fuel prices now only marginally higher than they were a year ago. Still, the slowdown should be a welcome development for the Bank of Namibia (BoN) and its quest to temper inflationary pressure.

“The drop in April’s inflation print, coupled with the fact that we see inflation starting to ease in other parts of the world, may signal the start of a much-anticipated disinflationary cycle which in turn could see the end of the BoN’s tightening of the belt,” IJG said.

The BoN raised lending rates by a further 25 basis points last month, again deciding to not hike as aggressively as the South African Reserve Bank last time round and now lags the SARB’s lending rate by 50 basis points. Elevated food prices and a weak currency do however pose risks to the BoN’s inflation fight, IJG pointed out.

The Bank of Namibia projects inflation to average 6.1% this year. IJG’s inflation model predict a gradual slowdown in Namibia’s annual inflation rate over the remainder of year, before ending the year at around 4.8%.

Simonis Storm expects the Bank of Namibia to hike its repo rate by 25 basis points at their next Monetary Policy Committee meeting on 14 June 2023. “This will take the repo rate from 7.25% to 7.50% and we expect the repo rate to remain unchanged thereafter until year end,” Simonis Storm [email protected]