Interest rates expected to rise twice this year
Category Property Maintenance & Costs
The SA Reserve Bank will raise interest rates twice more this year, despite a sickly economy, as inflation remains stubbornly above the bank's comfort level, according to a Reuters poll.
The outlook is similar to other emerging markets that are experiencing a near stagflation environment compared with developed countries, which are at pains to get the quicker inflation needed for a sustained recovery.
Inflation is only expected back on target two years from now, leaving economists convinced the SA Reserve Bank's hiking cycle is not over, a survey of more than 30 economists taken in the past week showed.
"With prices likely to remain pressured for the remainder of this year, we expect to see an even more hawkish Reserve Bank," Rafiq Raji, the managing director at Macroafricaintel Investment in Lagos, said.
The central bank raised rates in March by 25 basis points to 7 percent and said that with upside risks to inflation forecasts and the protracted period of the expected target breach, further tightening was required.
Economists now expect the repo rate to end the year at 7.5 percent.
Rates have been hiked 200 basis points in the last two years to 7 percent and 25 basis points will be added in May and the same amount again in November. Inflation is expected to accelerate and average 6.7 percent this year, the poll found.
Consumer inflation broke the Reserve Bank's 6 percent comfort level in January and hit 7 percent in February - its highest in almost seven years.
Tighter monetary policy means South Africa's economy will only grow 0.7 percent this year and 1.4 percent next, well shy of the 3.2 percent and 4.3 percent respective forecasts for Nigeria.
Bank of America Merrill Lynch said in a note it expects South African growth to firm next year with domestic electricity constraints expected to ease into 2017 while commodity prices stabilise globally.
However, it warned the outlook this year was at risk from events in China, a potential loss of the country's investment grade rating and elections.
Author: Reuters
