Taking a Closer Look at SA Interest Rates and Inflation – What Are the Drivers?

• In May, the South African Reserve Bank (SARB) raised the Repo rate (Repurchase Rate) by a further 50bps to 4.75%.   The SARB last adjusted interest rates on 24 March. Notably, since November 2021, the Repo rate has increased by a total of 125bps.  South Africa’s prime interest rate should now increase to 8.25%.

• There is a strong view that the SARB will likely continue to hike rates during to 2022 with two further rate hikes (25bps each), taking the Repo rate up to 5.25% by year end.

• The Reserve Bank highlighted the upside risks to SA inflation, which are focused on a range of factors including food, fuel, and wages. Concerns about the cost of electricity – as well as the potential impact of further currency weakness – were also flagged.

• The Bank’s forecast of headline inflation * in 2022 is now sitting at 5.9%.

*Headline Inflation:  the measure of the total inflation in an economy, including commodities such as food and energy prices.

Source: Analytics Consulting FX Solutions