South Africa is on the verge of a significant interest rate increase.

According to experts at the Bureau for Economic Research, South Africa is likely to witness another interest rate hike next week, albeit it may be greater than originally expected (BER).

“We now expect the South African Reserve Bank (SARB) to hike the repo rate by 50bps next week, against the global backdrop of more rapid policy normalisation and, importantly, the associated recent sharp weakening of the rand exchange rate, and the sustained upside risks to domestic inflation,” the group said in a research note on Monday (9 May).

“This differs from the earlier expectation of a 25 basis point raise at the May policy meeting. The conclusion of the SARB is unlikely to be unanimous,” it stated. The estimate comes after the US Federal Reserve raised its policy rate by 50 basis points (bps) last week, the largest rise in over two decades — despite market expectations for a 75bps boost this month. In the next months, Fed chair Jerome Powell has indicated that 50 basis point hikes are anticipated at the next two meetings (June and July), with a return to 25 basis point increases in September.

The Bank of England (BoE) raised its policy interest rate by 25 basis points in the United Kingdom. The UK policy rate was raised for the fourth time in a row at this meeting. While these rate rises were expected, several other central banks shocked the market by being more hawkish than predicted.

The Reserve Bank of India raised interest rates by 40 basis points at an unexpected meeting, and the Reserve Bank of Australia raised rates by a larger-than-expected 25 basis points. Some developing market central banks, such as Poland and the Czech Republic, raised interest rates by 75 basis points, with further rises predicted next month.

Furthermore, the European Central Bank (ECB) is likely to join the rate-hiking club as soon as July, with policy rates above zero by the end of the year.

As South Africa faces higher-than-expected inflation, Jeff Schultz, senior economist at BNP Paribas South Africa, has penciled in rises.

“We expect price pressures to become more challenging by the middle of the year, where we anticipate a more protracted breach of the SARB's upper 6 percent target range again from June, where we think headline inflation will struggle to return to the SARB's 4.5 percent midpoint target until H2 2023, notwithstanding temporary fuel levy reprieve in April and May, which could see CPI temporarily slow towards 5.8 percent in the following two months,” says the report.

“We believe this will drive the SARB to accelerate rises beginning with its May MPC meeting, where we forecast 50bp raises in May and July, followed by regular, sequential 25bp hikes through May next year.”

The current heavy load shedding, according to Schultz, is unlikely to discourage the central bank from intervening to keep inflation expectations at their current 4.5 percent target. Due to outages, Eskom has warned that the country might see more than 100 days of blackouts this year.