With one week to go before the January repo rate announcement, there is an almost-unanimous expectation from experts the rate will increase.
The majority of panellists on Finder.com’s SARB Repo Rate Forecast Report says the Monetary Policy Committee will hike the rate by 0.5%.
January is likely to be the peak of this interest rate cycle, according to 48% of the panel, with an additional 36% believing the rate will peak in March.
- 59% think the repo rate will increase by 0.5%
- 33% are forecasting a 0.25% increase
- 19% think the rate should hold
Morgan Stanley senior economist Andrea Masia is one of those who believes the rate should not be adjusted.
“While risks of a final 50bp hike in the cycle is elevated, we think there is good reason to pause and assess the impact of historical tightening. A stronger FX (foreign exchange market) and lower oil prices create the breathing room to do so.”
Sanlam Investment Management’s head of fixed interest, Mokgatla Madisha, agrees the rate should hold but thinks the SARB will likely raise it by 0.5%, given that central banks are in policy tightening mode.
“Policy acts with a lag and we are yet to see the impact of last year's rate hikes on the economy. Furthermore, inflation in South Africa has clearly peaked and with year-end forecasts of inflation close to 5%, the current repo rate of 7% is sufficiently restrictive.”
Disagreeing with this, however, BNP Paribas chief economist Jeff Schultz thinks the SARB will and should increase the rate by 0.5% due to sticky inflation expectations, an arguably more vulnerable currency outlook, and the fact that most disinflation is concentrated in fuel prices while core inflation will continue to climb.
“Though the decision is likely to be a close call and split between those advocating for 25bp and those advocating for 50bp, we think that persistently large uncertainties that remain on the domestic inflation outlook will sway the committee to buy itself a bit more insurance and hike 50bp.”
Homeowner pressure
The majority of the panel (57%) think the rate will increase again in March while 43% believe it will hold. In addition, 91% of the panel think South African homeowners will be under increased mortgage stress in 2023 as a result of interest rate hikes.
Jawitz Properties chief executive Herschel Jawitz notes that mortgage repayments have increased by 50% from the low of 7%.
“On a one million rand mortgage, repayments have increased from approximately R7750 per month to R9984, an increase of 29% which is significant...so if your earnings haven't increased at the same rate, the financial pressure will build. We would expect to see more distressed sellers putting their homes on the market”.
First-time buyers are especially at risk, states Just Property chief executive Paul Stevens.
“I don’t think many of the first-time buyers that entered the market after the easing of interest rates had taken into account potential increases, and not just in their home loans. Along with all other living costs that they may not be able to keep up.”
Just two panellists, including Nedbank economist Liandra da Silva, disagree.
“Although homeowners are under more pressure now than they were in early 2022, they likely faced the worst of interest rate hikes already. The SARB will hike at a softer pace this year, and likely only in the first half of 2023. Furthermore, price pressures are abating, which should offer some support,” she said.
The panel does not believe South Africans will have to wait too long for a hold decision, with 72% forecasting a hold in May, and 94% a hold in July. Even further good news for bond holders is that 17% believe the repo rate could actually start decreasing as soon as September. However they might need to wait until 2024 as 50% of the panel forecast at least one rate decrease in the first half of the year and 67% in the second half of the year.
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