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Poll: Sarb may end its tightening cycle in Q1

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The South African Reserve Bank will probably jack up interest rates by just 50 basis points more in early 2023 as signs of disinflation are expected to materialise after a series of aggressive rate rises this year, a Reuters poll found.

Annual consumer price inflation in Africa’s most industrial economy has been gradually easing since striking a 13-year high of 7.8% in July, showing further signs of cooling as it is in other parts of the world.

Another decline to 7.4% in November likely provided some comfort to the Monetary Policy Committee, suggesting they will step back from aggressive 75 basis point moves delivered at the past three meetings, like the U.S. Federal Reserve.

The MPC, which has raised rates by 350 basis points since November 2021, will raise the repo rate by another half-point in total to 7.50% by the end of March, according to 9 of 12 economists. The MPC meets in January and in March.

Most expect no further tightening, but that does not necessarily mean a series of cuts is around the corner, even though many economists are already expecting a slightly lower repo rate by the end of next year.

“We started hiking before the Fed, and we’ll hit peak repo before the Fed hits peak fed funds,” said Peter Worthington, economist at Absa.

“However, if at the middle of next year the Fed is still in a hiking cycle of unknown duration and ultimate magnitude, then we’ll hold off on cuts,” he said.

U.S. central bankers began their last policy-setting meeting of the year Tuesday with data suggesting inflation is cooling, allowing them to slow their interest rate hikes into next year and, traders are now betting, stop short of 5% by March.

South Africa’s economy is expected to slow markedly next year to 1.2% from an estimated 2.1% this year as the country grapples to keep surprisingly strong momentum in the last quarter. South Africa is currently battling chronic power cuts.

Eskom – the national utility – has linked the latest power constraints to breakdowns at its coal-fired power station fleet, delays returning some generation units to service, and its diesel budget being depleted, among other factors.

Inflation in the longer-term is expected to ease to an average of 5.6% next year and much closer to the midpoint of the SARB’s 3%-6% comfort level. Estimates suggest it averaged 6.9% this year.

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