• Market Watch

Will SARB keep interest rates on hold or hike?

Whether the repo rate differential between Namibia and South Africa will widen or remain unchanged at 50 basis points (bps), is set to be determined.

The fifth monetary policy announcement for the year by the South African Reserve Bank (SARB) is expected to take place later in the afternoon.

Year to date, SARB hiked the repo rate by 125 basis points. At the fourth monetary policy announcement in July, the South African central bank kept the repo rate unchanged at 8.25%.

Similarly, the Bank of Namibia (BoN) at the fourth monetary policy announcement decided to keep the repo rate unchanged at 7.75%. Year to date, BoN hiked the repo rate by 100 basis points.

Fin24 recently reported that the South African inflation expectations declined for the first time in two years, suggesting price-pressures have peaked and the central bank will be able to keep interest rates on hold.

Average inflation expectations for this year fell to 6.1% in the third quarter from 6.5% previously, according to a survey released by the Stellenbosch-based Bureau for Economic Research. The rate of price growth for 2024 is now seen declining to 5.5% from 5.9% and to 5.3% from 5.6% in 2025, according to participants in the poll of analysts, business people, labour unions and households.

"It was the first drop in average 2023 expectations in two years," BER said. "Lower expectations were also evident over the entire forecast horizon — 2023 to 2025 — and mostly due to downward revisions by business people and trade unionists," it said.

The expectations were slightly above the central bank’s average inflation forecasts of 6% for this year, 5% for next and 4.5% in 2025.

The survey results influence decision making by the South African Reserve Bank’s monetary policy committee, which prefers to anchor inflation expectations close to the 4.5% midpoint of its target range. Its preferred indicator for medium-term inflation expectations is two-years-ahead. -phillep@nmh.com.na