The SA Reserve Bank (SARB) is likely to again increase its interest rates next week, say economists at the Bureau for Economic Research (BER).
“Against the global backdrop of more rapid policy normalisation and, importantly, the associated recent sharp weakening of the rand exchange rate, and the sustained upside risks to domestic inflation, we now expect the SA Reserve Bank (SARB) to hike the repo rate by 50bps next week,” says BER.
“This is a change from the previous view for a 25bps hike at the May policy meeting. The SARB’s decision is unlikely to be unanimous.”
The key question remains whether the US Fed in particular will be able to engineer a so-called ‘soft landing’, which would mean that economic growth and the labour market hold up despite steep interest rate increases.
The latest job figures from the US were still solid, but the April ISM print points to a slight loss of momentum in the manufacturing sector as supply disruptions due to lockdowns in China were flagged by some respondents.
Indeed, very weak April PMI numbers (see international section) suggest that the Chinese economy might even contract on a quarterly basis in Q2. Concerns about the Chinese economy and tighter global monetary policy led to most global stock markets ending in the red last week.
The local JSE Alsi declined by more than 6% as financial and resource stocks were under pressure. Largely for the same factors that weighed on global equity markets, the rand exchange rate lost further ground against the dollar and UK pound, but was virtually unchanged against a broadly weaker euro. With assets out of favour, local government bond yields also rose somewhat last week.
Despite concerns about global growth, the Brent crude oil price rose for a second week as the European Union (EU) moved closer to banning Russian oil imports.