South African households are facing yet another interest rate hike this week – and the numbers could come in worse than initially anticipated.
In March, the MPC surprised the market when it hiked the rate by 50 basis points, increasing the repo rate to 7.75% and the prime lending rate to a 14-year high of 11.25%. At the time, analysts and economists anticipated an end the hike cycle, with only a few expecting one more hike of 25 basis points to follow in May.
“In that sense, increasingly, the power crisis is a stagflation – lower growth, higher inflation – shock.” The rand has also been beaten to the ground by allegations that South Africa sold arms to Russia. While these allegations – made by the US ambassador to South Africa – remain unproven, the government has launched an independent investigation into the matter.
Before the recent bout of currency weakness, the BER expected an increase of 25bps, signalling the end of the tightening cycle. However, the economists now say that the future of the hike cycle is more murky and indeterminate. Mixed commentary from Fed policymakers during the past week have added to local uncertainty, the BER said.