Will the Reserve Bank HIKE interest rates tomorrow? We predict

The question on everyone’s lips is whether the South African Reserve Bank (SARB) will hike interest rates tomorrow (21 September 2023)? The country has been on a good run of late, with interest rates unchanged since May 2023. However, let’s consider all the facts and try preempt what’s in store for tomorrow …

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Many media outlets, like Business Tech, are reporting that the SARB is expected to keep interest rates the same, which is good news. However, there is always the risk that recent events could still lead to a surprise increase.

RESERVE BANK HIKE INTEREST RATES

It was released today from Stats SA that annual consumer price inflation picked up by 0.1%, from 4.7% in July to 4.8% in August. While it is a small increase – and is within economists’ expectations – it is an increase nonetheless, the first in four months. That’s roughly the last time the Reserve Bank hiked interest rates.

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As we’ve explored recently in our weekly grocery basket comparisons, food inflation has steadily dropped from 9.9% in July to 8.0% in August. But progress on food pricing has been largely counteracted by sharp increases in fuel prices of late. The National Treasury is also concerned about a massive tax revenue shortfall for the year so far.

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Similarly, South Africans are suffering on the home front due to a 15.3% annual increase in electricity tariffs, 9.6% increase for water in 2023, as well as an increase in property rates countrywide. All of these inflationary pressures give context to whether the Reserve Bank will hike interest rates.

WILL WE FOLLOW AMERICA’S LEAD?

Looking to the US, it hiked interest rates by 25 basis points consecutively in both May and July. This brought its bank rate to 5.25% versus South Africa’s 4.75%. And economists are considering whether the SARB will follow the US Federal Reserve’s lead.

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It must be noted that narrowing the interest rate difference between South Africa and the US will weaken the Rand and might raise inflation. However, economists have predicted that inflation will likely close at 4.5% for 2023, which means the Reserve Bank will not have to hike interest rates to keep inflation under control.

LOOKING AHEAD

So, to the question, will the Reserve Bank hike interest rates, the answer seems to be a likely ‘NO,’ at this stage. However, the ever-increasing pressure of fuel-price hikes and the drier El Nino weather pattern could put pay to that in 2024.

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Nevertheless, companies such as Investec are rather bullish about the SARB hiking interest rates. It says South Africa’s interest rate hike cycle is over and we could even see cuts from Q1 2024. Although it is too early to tell of course and a lot can change in the next three months.

Check out Investec’s predictions here:

Period end rate %	Q1.23	Q2.23	Q3.23	Q4.23	Q1.24	Q2.24	Q3.24	Q4.24
Repo Rate	7.75	8.25	8.25	8.25	8.00	7.50	7.50	7.00
Prime Overdraft Rate	11.25	11.75	11.75	11.75	11.50	11.00	11.00	11.00

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Will the Reserve Bank hike interest rates? Be sure to share your thoughts with our audience in the comments section below. Send an email to info@thesouthafrican.com.

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