Reserve Bank Governor Lesetja Kganyago says the rate hiking cycle is likely not over yet. This as the Monetary policy committee yesterday decided to pause the repo rate at 8.25%. The prime lending rate thus remains at 11.75%.
Kganyago says there may be a need for more hikes in the coming months, depending on a number of factors, including the trajectory that inflation will take over the next several months.
A generally stronger rand and lower inflation relative to the previous meeting led to three MPC members voting in favour of a hold while two preferred a 25-bps lift.
The Sarb governor says monetary policy remains restrictive and future decisions will be data dependent.
Ideally, the Sarb would want to see inflation to reduce even further to its mid-point of 4.5%. June’s consumer inflation came in at 5.4%.
Oxford Economics believes rates have peaked but will remain at current high levels for quite some time before coming down.
FNB Chief Economist Mamello Matikinca-Ngwenya says the end of the hiking cycle has been difficult to predict.
Before yesterday’s decision, the Sarb had hiked the repo rate for 10 consecutive times from November 2021.
“We believe this pause is consistent with the MPC taking stock of local inflation that has fallen within the target band in June, US inflation that has fallen closer to target, as well as an improvement in the risk associated with SA assets and the implied starting point for the rand since the previous MPC meeting.”
Matikinca-Ngwenya says the MPC will likely remain cautious.
“In addition, signs of the transmission of monetary policy are starting to trickle in. The 2Q23 FNB/BER Consumer Confidence Index showed that households consider the current period to be inappropriate for the purchase of durable goods. In line with this, new passenger car sales have slowed considerably, and demand for mortgages is falling. Furthermore, affordability constraints amid compressed disposable income and tighter lending standards should constrain spending growth and reinforce slower inflation. Overall, prevailing upside inflation and funding risks should keep the MPC cautious. To insulate their ability to reach the 4.5% inflation target in the medium term, the hiking cycle may be resumed, and most likely, interest rates will remain higher for longer.”
Meanwhile, Money Coach at 1Life Hayley Parry agrees the pause in repo rate hikes is a chance for consumers to exhale, but to celebrate would be premature. Parry says it’s a short reprieve for those in debt.