The"normalisation cycle" in interest rates may not be all that normal for South Africa, writesNormalisation means different things in different economies. In the developed world, it entails lifting off the zero lower bound. The UK, Norway, and New Zealand are the first major economies to have started their hiking cycles.
Many producers thought that the lockdown-induced recession would be a prolonged affair leading to structural change in the level of demand. There are early indications that the supply disruptions are starting to ease, which suggest that much of the inflationary pressures should ultimately be transitory. The problem is that the duration of the pressure is proving to be much longer than initially expected, increasing the risk that inflation persistence could de-anchor inflationary expectations with a spillover to wage growth, and thereby inducing a wage-price spiral.
It is usually not immediate, nor one-to-one, but the SARB usually hikes sometime after the Fed does, rather than risk further exchange rate weakness. Whereas the US output gap has moved into positive territory , South Africa still has a negative output gap, which should curtail inflationary pressures.