South African Reserve Bank (Sarb) governor, Lesetja Kganyago is due to announce the decision of the Monetary Policy Committee (MPC) on the repurchase rate (repo rate) in the country today.
Ahead of the decision, economists and analysts have been split in their predictions about whether the central bank would raise rates or hold them steady.
The current repo rate in South Africa is 7.00%, which puts the prime lending rate at 10.50%.
If the bank decides to increase the rate, many experts predicted a 25-basis-point increase.
A 25-basis-point (bps) increase would see the repo rate increase to 7.25% and the prime lending rate increase to 10.75%.
Earlier on Wednesday, Statistics South Africa (Stats SA) released annual consumer inflation data, which increased to 4,4% in August from 4,3% in July.
Frank Blackmore, Lead Economist at KPMG South Africa said that this was a slight increase from the 4.3% in July.
"One of the pleasing aspects of the inflation was core inflation, which is that aspect without the variable costs of food and energy prices, reduced to 4.1% from 4.3% last month. I think this is a good sign because it breaks the trend of an increase in core inflation over the last few months. The main contributors to inflation remain housing and utilities, in other words, electricity prices, water prices, etc., contributing 1.3 percentage points, and this is followed, obviously, by transport," Blackmore said.
"Given the war in Iran and the closing of the Strait of Hormuz, we’ve seen upward pressure on prices of both oil as well as refined product, petrol and diesel, and this is reflected in that sort of inflation coming through from transport costs. This still puts us in a position where we’re way above the 3% Reserve Bank target for inflation, and therefore, and with upward pressures continuing in terms of those transport costs, I see further increases in the repo rate," Blackmore added.
Watch Kganyago deliver his address below:
Seeff Property Group chairman Samuel Seeff, ahead of the announcement renewed his call for the MPC to resist another rate increase, arguing that higher borrowing costs would place additional pressure on households and property owners at a time when the economy is already facing subdued growth and rising living costs.
Seeff said South Africa needed stability rather than another increase in borrowing costs.
He said the current inflationary pressures were largely being driven by external supply factors and that increasing interest rates would not address the underlying causes of higher oil and energy prices.
Seeff said, "The current environment requires the Reserve Bank to look beyond short-term cost pressures and consider the broader effect of monetary policy on economic activity. Stability is now vital for the economy and property market.”
He argued that the current oil price pressures and inflation spike remained temporary global supply side factors, although they had taken longer to ease than initially expected.
“An increase in interest rates under these circumstances would fail to address external cost pressures while placing unnecessary financial strain on already constrained consumers and property owners,” Seeff said.
Johann Els, Chief Economist at PSG Financial Services, expects the Reserve Bank’s decision to be extremely close and potentially split.
Els said there were arguments for both a rate increase and a hold, but he remained cautious about expecting a hike.
“It will be a very close call, and I expect a split decision. However, it would be an oversimplification to simply expect a rate hike. A rate hike is not a done deal,” Els said.
Els said several factors supported a hold.
"The rand has remained relatively stable despite significant global uncertainty, while real interest rates remain restrictive. Inflation expectations also declined in the third quarter, particularly among households and trade unions. More importantly, the Reserve Bank already increased the repo rate by 25bps in May," Els said.
“The question now is whether it makes sense to hike again so soon, before we have seen the full impact of that May hike working through the economy, especially since inflation expectations actually eased in the third quarter,” Els said.
ashley.lechman@nationalmg.co.za