There was bad news for borrowers today, but probably one should say it was bad news for us all. Inflation, which is one of the economic indicators which should scare us most, rose to 6% in March – the top of the target range of the Reserve Bank. This means both that price rises are happening at a disturbing rate, and that the pressure will be on the Reserve Bank to do something about high inflation. And that something normally involves hikes in interest rates…..
So, what do our experts say?
Nedbank Economic Unit:
The inflation outlook remains poor in the short term as the rand is still vulnerable despite its recent strengthening.
The Reserve Bank has made it clear that we are in a rate-hiking cycle, but the extent and speed will be rand and data dependent.
The Reserve Bank governor also raised the possibility of hikes in smaller increments than the usual 50 basis points. Given the need to balance growth prospects with higher inflation we anticipate that rates will rise by 25 basis points at two of the next four meetings.
Headline CPI inflation is likely to largely remain contained within the 3 – 6% target band and any breach should prove temporary in nature. This would afford the SARB the room to normalise monetary policy at a gradual pace. We continue to expect only one more interest rate hike this year of 50bp, to be implemented in July.
So, it looks as if interest rates are about to head North again. Good for lenders. Not so for borrowers…..
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