Interest rate hike looms as inflation hits 19-month high
The SARB’s Monetary Policy Committee (MPC) is due to announce its latest interest rate decision on Thursday, with growing expectations of a 25 basis point increase aimed at containing inflation risks linked to the Middle East conflict and rising oil prices.
Image: Gemini/Ai
South Africans are preparing for higher borrowing costs as economists expect the South African Reserve Bank (SARB) to raise interest rates this week. This comes after inflation jumped to 4%, the highest it has been in 19 months.
The SARB’s Monetary Policy Committee (MPC) is due to announce its latest interest rate decision on Thursday, with growing expectations of a 25 basis point increase aimed at containing inflation risks linked to the Middle East conflict and rising oil prices.
If implemented, the repo rate would increase by 25 basis points, pushing the prime lending rate from 10.25% to 10.50%.
The prospect of higher rates comes as many households remain under pressure from rising living costs, sluggish economic growth and unemployment, which officially stands at 32.7%.
Samuel Seeff of Seeff Property Group urged the SARB not to raise rates, arguing that the recent inflation increase was driven largely by external factors rather than excessive consumer spending.
“The higher inflation is largely imported. It is not the fault of consumers overspending in the economy,” Seeff said.
The property sector remains particularly vulnerable to interest rate movements.
Bradd Bendall from BetterBond said a 25-basis point increase would affect affordability for many consumers, despite rates remaining below 2024 highs.
He noted that repayments on a R2 million home loan would still be roughly R1 700 cheaper per month than two years ago.
However, Bendall said first-time buyers were already under strain, with upfront deposit requirements for this segment increasing by 38% in April alone.
Economists and currency analysts, meanwhile, believe the SARB may still be compelled to act because of growing inflation risks tied to global oil prices and pressure on the rand.
Lerato Ntuli from Anchor Capital said inflation risks remained “skewed to the upside”, noting that inflation had moved closer to the upper end of the SARB’s newly adopted 3% target framework.
Lara Hodes from Investec said inflation risks had increased because of the conflict in the Middle East.
“The SARB is likely to hike rates by 25bp to 7% this week, acting pre-emptively to prevent any second-round effects from becoming embedded in inflation,” she said.
Harry Scherzer from Future Forex said a higher-for-longer interest rate environment helped support the rand and reduce imported inflation risks linked to fuel and energy prices.