By Staff writer
Experts at Simoni Storm say they expect another 25bps – as opposed to 50bps – hike by the South African Reserve Bank (SARB) in January 2023, which is in line with the Forward Rate Agreement (FRA) curve, which factors in about another 25bps hike in South Africa by the end of the first quarter of 2023.
On Wednesday, the Bank of Namibia announced that it would increase the repo rate by 50 basis points to 6.75 percent. This was their final announcement for the year.
According to the financial experts, the expected hike by the start of next year is driven by recent commentary from Federal Open Market Committee (FOMC) members indicating that the pace of rate hikes in the US will likely slow.
They also say upside risks to inflation in South Africa have reappeared and downside risks to economic growth in South Africa have increased.
They initially expected a 50bps hike by BoN in February 2023, it now seems likely for a 25bps hike or for the repo rate to remain unchanged at the next meeting.
“We believe a 25bps hike is more likely, as BoN progresses on a gradual reduction in the pace of rate hikes and reaching the end of the local hiking cycle. This expectation seems more likely given that two MPC members at the last meeting were in favour of smaller interest rate hikes and now we see all five MPC members supporting smaller hikes than SARB after today’s meeting. We still expect BoN to follow SARB with two 25bps cuts in the third and final quarters of 2023,” they report.
The SARB reduced its growth forecast for 2023 from 1.4% to 1.1% and revised its inflation forecast upwards from 6.5% to 6.8% for 2023.
“BoN forecasts inflation to average 6.1% in 2022 and falling to 4.9% in 2023. With regard to growth, BoN indicated that their 3.2% growth forecast for 2022 is currently being revised upwards due to positive developments taking place in the mining, agriculture, transport, communication, tourism, and retail sectors.”
The analysts too have revised their growth forecast higher for 2022, due to higher-than-expected performance in the first half of this year.
“Foreign currency reserves dropped from N$48.0 billion in September 2022 to N$44.8 billion in October 2022 due to a higher import bill and foreign government payments. Current reserves are at 4.8 months of import cover,” the experts at Simonis Storm said.
In making their announcement on Wednesday, BoN governor Johannes !Gawaxab said the hike on the repo was done to continue anchoring inflation expectations and safeguarding the peg arrangement.
“This decision was taken following a comprehensive review of global, regional and domestic economic developments, and was mindful of the need to strike a balance between anchoring inflation expectations and supporting the domestic economic recovery,”!Gawaxab said.
Another ReproRate Hike Likely To Welcome 2023
