News Articles

SA interest rates could see biggest hike since 2016 this week

Source: Fin24, 20/05/2022

Jeff Schultz expects the SA Reserve Bank will front-load the rate hike cycle with two increases of 50 basis points each in both May and July as it attempts to ensure that inflation falls back towards 4.5%.
We expect the SA Reserve Bank (SARB) to hike its policy rate by 50 basis points ` its largest hike since January 2016 ` to 4.75% on Thursday. While high levels of uncertainty and a weak South African economy suggest that the decision is unlikely to be unanimous, we expect a stronger majority (4:1) than before to be in favour of front-loading hikes.
The SARB is unlikely to make large adjustments to its growth or output gap estimates presented in its March forecasts, although it could revise down slightly its 2.0% 2022 GDP growth forecast in response to the April floods in KwaZulu-Natal and resultant damage to infrastructure and port delays.
SARB could also lower its bullish 3%-of-GDP current account surplus forecast for this year for the same reason. However, we don’t expect this, or the recent step-up in load shedding, to influence the SARB’s decision next week ` the focus right now is probably on anchoring inflation and inflation expectations.
CPI inflation averaged 5.8% year-on-year in the first quarter, in line with the SARB’s March estimate. In addition, a major private medical insurance provider has further delayed a premium increase to October (from May previously) and a temporary reduction in fuel levies has been introduced for April and May.
However, such developments are only likely to change the shape of the SARB’s inflation profile, not its forecast peak. SARB previously forecast the inflation rate to peak at 6.2% in the second quarter and average 5.8% in 2022 versus the BNP Paribas forecast of 6.2%.
The SARB’s own estimates of local supply chain difficulties have spiked to a record high, oil prices remain high and volatile (above the SARB’s $103 per barrel assumption for 2022) and the rand has come under renewed downward pressure as a result of global monetary policy tightening and concomitant growth and commodity price concerns.
SARB had a starting point of R15.41/dollar in March, whereas the pair is currently trading above 16.10).
We view the SARB’s assumptions on food inflation as conservative (average of 6.1% pencilled in for 2022 - versus the BNP Paribas forecast of 7.6%).
Global food price inflation (as compiled by the Food and Agriculture Organisation of the United Nations) has surged and could rise further as a result of the impact of the Russia`Ukraine war. Given the three-to-four month lagged effect that this has on domestic agricultural product prices and up to three-to-three-month lag on CPI food prices, we believe that the SARB will have to raise its food inflation forecasts next week.
In addition to rising supply-side pressures on inflation, our in-house `core-core` indicator of output gap sensitive prices rose above Stats SA’s traditional core measure in March for the first time since May 2018. This suggests services price inflation ` to which our indicator is more heavily weighted ` is building momentum.
Wage pressure
Wage negotiations currently include above-inflation wage demands in both the private and public sector. Higher settlements that are not matched by productivity gains are inflationary and a key upside risk to inflation.
Our analysis by major sectors shows that, after being held back by low wage increases last year, unit labour costs, particularly in the tertiary sector, have already started to rise sharply as productivity and underlying growth momentum slow.
Faced with materialising upward risks to the inflation outlook, and with the US Federal Reserve now likely to deliver four consecutive 50 basis point hikes into September, we believe that a strong majority on the five-member monetary policy committee will vote in favour of front-loading the rate hike cycle in both May and July (50bp hikes) as the SARB attempts to ensure a fall in inflation and inflation expectations back towards its 4.5% midpoint target next year (we do not expect inflation to fall back to target until the fourth quarter of 2023).
We maintain our above-consensus call for the policy rate to end 2022 at 5.75% and be raised to 6.50% by mid-2023 as the SARB looks to build up room for manoeuvre in a highly uncertain global environment.
www.samigration.com


Search

  •    As part of our ongoing coverage of Home Affairs issues across the country, Daily Maverick has been visiting branches and asking readers to engage with us about their personal experiences of Home Affairs service. We are also monitoring reported incidents across the country. Below are two cases that go beyond the regular offline and long queue woes.... Read more...
  •    Residence- and citizenship-by-investment (RBI and CBI) programmes have become very familiar over the past few years to South Africans who don’t have ancestral ties to other countries but are keen to gain residency or citizenship in a European country, and access to visa-free travel anywhere in the EU.... Read more...
  •    ETA Criteria for French Citizens in New Zealand The following are the eTA conditions for French visa holders in New Zealand: • A valid passport: The traveler must have a valid French passport for at least three months from the date of departure from New Zealand. • A valid email address is: The email address entered on the application will get the New Zealand eTA. It is critical to provide an email address that you regularly check to get updates on the eTA status.... Read more...
  •    `Home Affairs also says that you must be a South African citizen or permanent residence permit holder with a valid South African ID.` Photo: Getty Images The following question is a reader who wants to know if an abandoned child can get a birth certificate from Home Affairs.... Read more...
  •    Federal officials have been told to act on an “extraordinary” backlog in visa applications for thousands of skilled workers at a time when employers claim they will have to shut down if they cannot find a solution to chronic labour shortages.... Read more...
  •    Teachers play an important role in society as they help learners gain knowledge and skills that prepare them for life post-school or in their respective career paths.... Read more...
  •    Department of Home Affairs Minister, Aaron Motsoaledi, says his Department is considering the reintroduction of transit visas. Motsoaledi says reviving these types of visas will help deal with foreign nationals entering South Africa illegally through O.R Tambo International Airport. The transit visas were discontinued in 2015. Earlier this week, four Bangladeshi and four Pakistani nationals, were arrested after bypassing security measures at the airport to enter the country illegally.... Read more...
  •    • A task team report involving the issuing of permits at the home affairs department is `sensitive`, according to Aaron Motsoaledi. • He is `jittery` about distributing the report to the committee before it is presented to them.... Read more...
  •    At a Glance • The Department of Home Affairs is providing an automatic extension of status until 30 September 2022, for applicants currently in South Africa with pending visas and waivers, due to processing delays in adjudicating long-term visa applications. • The processing delays are a result of a measure put in place in January, where the Department of Home Affairs required all long-term visa applications to be adjudicated in Pretoria, instead of at the South African consular posts. Due to understaffing, there is now a backlog of applications.... Read more...
  •    • Home Affairs Minister Aaron Motsoaledi is reviewing some of the permits which were granted irregularly over the years. • The Department of Home Affairs says the minister will leave no stone unturned in uncovering the `dubious` visas, permits and special citizenships that were irregularly granted. • The department says Motsoaledi will `unpack the full details of his intervention` in the coming days.... Read more...

Get the latest Immigration News