Interest Hike probable according to Citygroup

The SA Reserve Bank (SARB) will probably raise interest rates by 25 basis points next week and again in September, according to Citigroup.

SARB will increase rates by 100 basis points in the next 12 months, Gina Schoeman, an economist at Citigroup in Johannesburg, told reporters on Thursday. An increase in rates by SARB this month will show that the bank is “maintaining its independence and its credibility”, she said.

SARB, which will announce its next rates decision in Pretoria on July 23, has kept its benchmark repurchase rate unchanged at 5.75% for a year as the economy recovers from the slowest growth since the 2009 recession.

Inflation quickened to 4.6% in May from 4.5% in the previous month. Inflation will peak at 7.2% in the first quarter of next year and stay above the upper end of SARB’s 3% to 6% target band for the rest of 2016, according to Schoeman. SARB’s Monetary Policy Committee (MPC) has little flexibility to continue the pause in its rate-hiking cycle “but we are not on any pre-set course and we remain data dependent”, SARB deputy governor Daniel Mminele said in an interview on July 7.

“We are ready to act when we think that the situation warrants it.” The South African economy will probably expand by 1.7% this year, with rolling blackouts by ESKOM shaving one percentage point off growth, Schoeman said.

Gross domestic product (GDP) will grow by 2.1% next year and by 3% or more in 2018 as the constraints in electricity supply ease, she said.

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