The South African Reserve Bank (SARB) might be forced to hike interest rates for the first time this year as inflation in prices continues to rise. The forecasted increase is said to be 25 or 50 basis point (bp).
Factors like the drought, increasing food prices and electricity hikes hasn’t made it easier for the Rand to redeem itself following an all-time low. Statistics by stats SA showed that South Africa’s annual consumer price inflation rose to 5.2% in December 2015, as was expected and 4 percentage points higher than November’s 4.8%.
Economists predict that this will be done in efforts to contain inflationary expectations and try restore the financial stability. The flexibility of commodity prices in the country is largely determined by supply and demand. The demand for a currency (relative) to the supply will determine its value in relation to another currency.
“We forecast a larger incremental 50bp rate hike this time, given both an extended breach of the 6% target ceiling in our CPI (consumer price index) outlook and heightened inflation risks (in ZAR and food prices mostly),” said Citi Research earlier this week.
Nedbank in a statement said that it believed that SARB will increase the repo rate by 50 bp at its meeting later this month and then hike by the usual 25 basis points in the following three consecutive meetings.
Whatever the outcome all eyes will be on SARB this afternoon for the big announcement and consumers paying back interest on hire purchase will feel the pinch; although the proposed hike will have an impact on the cost of living of all normal South Africans