According to data released on Wednesday, headline consumer inflation in South Africa fell to an 11-month low of 6.8% in annual terms in April, though analysts and markets still expect the central bank to raise interest rates on Thursday.
The South African Reserve Bank (SARB) is caught in a bind as it attempts to contain inflationary pressures without further stifling the country’s already sluggish economic growth.
In April, consumer price inflation was 0.4%, lower than the 1.0% seen in March and the 0.5% predicted by economists.
Investec economist Annabel Bishop forecasted a 50 basis point rate hike on Thursday based on data released on Wednesday.
Power outages, according to Bishop, are a major contributor to rising business operating costs and inflationary pressures.
The market had already factored in the full 50 basis point increase, according to Kieran Siney of ETM Analytics.
If inflation surprised to the upside, a 75 basis point hike would have been justified; however, the softer-than-expected CPI print cements a 50 basis point hike tomorrow. In an email, Siney stated that they expect “hawkish” forward guidance focused on the rand and anchoring inflation expectations.
The SARB has been raising rates since November of 2021, and if they do so again this Thursday, it will be the tenth consecutive increase.
Inflation in Africa’s most industrialized economy has been above the central bank’s target range of 3% to 6% since May 2022.
On Thursday, 11 out of 20 economists predicted that the SARB would raise the repo rate by 25 basis points to 8.00%. Five analysts predict a 50 basis point increase, while four predict no change.
