Economists Predict Moderate Interest Rate Hike After Consumer Inflation Drop

The South African Reserve Bank (Sarb)’s Monetary Policy Committee (MPC) is expected to hike the repo rate on Thursday, and a better inflation figure is expected to see a lower increase this time around.

Statistics South African recorded a 0.3% inflation contraction for April – cooling from the 7.1% in March to 6.8%.

This is the lowest inflation reading in almost a year – when inflation dropped to 6.5%

The reserve bank has been aggressive in its stance to curb inflation, increasing the repo rate beyond 125 basis points higher than what it was before the COVID-19 pandemic.

But KPMG economist Frank Blackmore said while the MPC will most likely hike the repo rate – it won’t be as severe.

“Twenty-five basis points is my guess. And the reason for this is inflation at 6.8%. This is far higher than where the reserve bank wants inflation.”

Economists do agree that the weak rand to the dollar and high inflation will put pressure on the MPC to carefully consider their decision.

The local currency is still trading at around R19.26 to the dollar – which is a major concern for the reserve bank.