Amidst efforts by the Reserve Bank to combat inflation, one economist believes that the repo rate hike expected from the Monetary Policy Committee (MPC) will be relatively moderate. A more favorable inflation figure is anticipated to result in a smaller increase this time.
In April, Statistics South Africa reported a contraction in inflation, with a decrease of 0.3%, down from 7.1% in March, settling at 6.8%, this represents the lowest inflation rate recorded in nearly a year, matching the 6.5% dip observed previously.
The Reserve Bank has taken an assertive approach in its measures to curb inflation, surpassing the pre-COVID-19 pandemic repo rate by more than 125 basis points.
KPMG economist Frank Blackmore suggests that the repo rate hike by the MPC is unlikely to be as drastic, he said: “My estimate is a 25 basis points increase. This is due to the inflation rate being at 6.8%, which exceeds the Reserve Bank’s desired level”.
Economists agree that the weakened rand against the dollar and elevated inflation will exert pressure on the MPC to carefully deliberate its decision.
The local currency continues to trade at approximately R19.26 to the dollar, raising significant concerns for the Reserve Bank.