Traders have bet South Africa’s central bank will hike interest rates in November after warning of upside risks to its inflation outlook.
Forward rate agreements starting in two months, used to speculate on borrowing costs, now call for a tightening of nearly 40 basis points by the end of the year. Less than a week ago, those contracts only provided for an 80% chance of a quarter point increase, before the South African Reserve Bank said only the underlying pressures on prices could intensify.
The bank prefers to anchor inflation expectations near the 4.5% midpoint of its target range. The inflation rate climbed for the first time in three months in August to 4.9% from a year earlier, and price growth expectations, as measured by the five-year breakeven point, are now on target. highest since May 2019.
“Delaying take-off could see monetary policy authorities catching up with inflation, which could destabilize relatively well-anchored inflation expectations,” the central bank said last week in its biannual monetary policy review. The benchmark rate, currently at a record 3.5%, needs to move closer to its neutral level over the medium term to reduce stimulus and contain price growth, he said.
The comments were “taken out of context, because in our view the Monetary Policy Review was only stating the obvious, considering that it is a retrospective document that primarily summarizes the last three meetings of the MPC and sometimes comments on the medium. futures outlook, ”Barclays Bank Plc economists, including Michael Kafe, said in an emailed note. He didn’t see the bank increasing borrowing costs until mid-2022.
The implicit path of policy rates from the central bank’s quarterly projection model, which the MPC uses as a guide, indicates a 25 basis point increase in the last quarter of this year. The November meeting is the only one remaining this year.
If one or more MPC members vote for a rate hike next month, it would be the first time since November 2018, when three of the then six committee members preferred a 25 basis point hike and the rest preferred a position. unchanged. The final decision was to go up to 6.75%.
– With the help of Colleen Goko.