South Africa Reserve Bank may hike interest rate

While the extension of the fuel levy relief reduces near-term domestic inflationary pressures, consumer price (CPI) inflation is expected to be higher this year than previously forecasted, according to experts at the Bureau of Economic Research (BER).

The organisation warned in a note released on Monday (6 June) that South African retail prices are projected to rise considerably more, particularly in the food sector. At the same time, a higher-than-expected oil price indicates that the fuel price will continue high, according to the report.

“Therefore, we now see consumer inflation averaging 6.1% in 2022, with headline CPI likely peaking above 6.5% in June.”

This raises the possibility that the South African Reserve Bank (SARB) would feel compelled to raise its repo rate by another 50 basis points (bps) next month, but for now, we’re sticking with our prediction of a 25bps hike, albeit with a low degree of conviction.