Repo rate forecast | Experts weigh in

The SARB's Monetary Policy Committee (MPC) is set to increase the repo rate at the January meeting by 50 bps, according to the majority of panelists on Finder.com's SARB Repo Rate Forecast Report.  

January is likely to be the peak of this interest rate cycle, according to 48% of the panel, with an additional 36% believing the rate will peak in March. 

59% think the repo rate will increase by 50 bps in January while 33% are forecasting a 25 bps increase. However nearly one in five panelists (19%), including Morgan Stanley senior economist Andrea Masia, think the rate should hold. 

"While risks of a final 50bp hike in the cycle is elevated, we think there is good reason to pause and assess the impact of historical tightening. A stronger FX and lower oil prices create the breathing room to do so," he said. 

Sanlam Investment Management's head of fixed interest, Mokgatla Madisha, agrees the rate should hold but thinks the SARB will likely raise the rate by 50 bps given central banks are in policy tightening mode. 

"...policy acts with a lag and we are yet to see the impact of last year's rate hikes on the economy, furthermore inflation in SA has clearly peaked and with year-end forecasts of inflation close to 5%, the current repo rate of 7% is sufficiently restrictive." 

BNP Paribas chief economist Jeff Schultz disagrees. He thinks the SARB will and should increase the rate by 50 bps at the next decision due to sticky inflation expectations, an arguably more vulnerable currency outlook and the fact that most disinflation is concentrated in fuel prices while core inflation will continue to climb.  

"Though the decision is likely to be a close call and split between those advocating for 25bp and those advocating for 50bp, we think that persistently large uncertainties that remain on the domestic inflation outlook will sway the committee to buy itself a bit more insurance and hike 50bp." 

The majority of the panel (57%) think the rate will increase again in March while 43% believe it will hold.  

91% of the panel think South African homeowners will be under increased mortgage stress in 2023 as a result of interest rate hike.

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article courtesy Property24