Economists react to SARB’s 50bps rate hike

The South African Reserve Bank (SARB) has increased the repo rate by 50 basis points, marking the fourth consecutive hike in a pace not seen since 2016. This move indicates a hawkish stance by the SARB, aiming to control inflationary pressures in the economy. CNBC Africa interviewed Gina Schoeman, Citibank Economist, and Arthur Kamp, Chief Economist at Sanlam Investments, to discuss the implications of this rate hike. Both economists agreed that the rate hike was expected and justified by the rising second-round effects in the economy. Schoeman emphasized the importance of maintaining price stability to support economic growth, while Kamp highlighted the concern of potential second-round effects on inflation. Schoeman and Kamp noted that the SARB's focus on controlling inflation is crucial to protect consumer incomes and ensure long-term economic stability. They agreed that the rate hike was necessary to prevent inflation from spiraling out of control and causing further damage to the economy. Despite the aggressive rate hikes, both economists expressed confidence in the SARB's ability to keep interest rates accommodative over the medium term. Looking ahead, Schoeman and Kamp predicted another 50 basis point hike at the next meeting in July, citing the emergence of second-round effects in core inflation and services inflation. They also highlighted the significance of inflation expectations and global factors, such as commodity prices and currency movements, in shaping future rate decisions. While they agreed on the need for a data-dependent approach, they differed slightly on the quantum of future rate increases, with Schoeman leaning towards a gradual tapering of hikes after July. In response to questions about the impact on the economy, Schoeman emphasized the importance of monitoring global growth, particularly in trading partner countries like Europe and China. She noted that while South Africa has benefited from commodity price support, external factors such as US Federal Reserve rate hikes could lead to capital outflows and currency depreciation. Kamp echoed similar sentiments, highlighting the role of prudent fiscal policy and wage negotiations in anchoring inflation expectations at a reasonable level. Both economists agreed that the SARB's proactive approach to tackling inflation now would lead to lower rate adjustments in the future, thereby supporting GDP growth. Despite uncertainties in the global and local economies, they remained optimistic about the SARB's ability to navigate the challenges and maintain price stability for sustainable economic growth.