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How Big a Repo Hike can we expect from SARB’s Monetary Policy Committee (MPC)?

Following the November 2021 MPC meeting, various factors drove fuel price hikes that landed the petrol price at R20/liter by the close of 2021. The SARB’s decision to raise the repo rate in November was largely aimed at containing inflation that was already testing the upper boundaries (5% for the months September and October 2021) and protecting the Rand from further depreciation.

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HOW BIG A REPO HIKE?

Following the November 2021 MPC meeting, various factors drove fuel price hikes that landed the petrol price at R20/liter by the close of 2021. The SARB’s decision to raise the repo rate in November was largely aimed at two things:

  • Containing inflation that was already testing the upper boundaries (5% for the months September and October 2021).
  • Protecting the Rand from further depreciation (which has for the longest of time been trading at a discount to its OECD purchasing power).

Table 1: Context at a glance

Did it work?

The MPC’s decision to hike the repo rate by 25 basis points in Nov 2021 was a close call (3 vs 2 split). While at the time of the decision the markets were still divided, hindsight indicates that the SARB made a good call. The question of the degree of the efficacy of the intervention may rather be the debatable aspect. The Rand slid for a while after the announcement (reaching R16,10 in mid-December) but subsequently firmed up (currently trading at R15,27).

The move, thus, gave support against the further depreciation of the Rand. Inflation on the other hand has gone in one direction: up! One thing that can always be argued is, it could have been worse. The United States of America has seen a similar inflationary pattern, hence the mounting pressure on the Federal Reserve Board to hike rates.


What can we expect from the MPC Meeting on 27th January, 2022?

We believe a further hike is due from the next MPC meeting (27 January 2022). Given that the November and December inflation numbers are nearing the 6% inflation target (Dec 2021 sitting at 5,9%), it is imperative that the SARB moves in this way to contain local inflation. This will most likely be done through a 25-50 basis point increase in the repo rate.

In a country where any rate hike is seen as an anti-poor stance, it is important to bear in mind that the mandate of the SARB is to protect the Rand and manage inflation within the 3-6% band. A stable currency and contained inflation yield positive economic outcomes (at the least averts a financial crisis) and therefore, by nature pro-economic growth and by extension pro-poor. Businesses and consumers alike should start gearing for higher interest rate in the mid-term. 

insight by:

Prince Ken Nkiwane
Management Consultant
@Kettle Consulting

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