The South African Reserve Bank (SARB) is likely to continue on the path of gradual interest rate normalisation with a further 50 basis points in rate hikes this year‚ according to FNB economists Alex Smith and Mamello Matikinca.
Noting that the substantial 50 basis point interest rate hike from the SARB this week had seen a modest recovery in the Rand‚ the economists said the SARB found itself in a difficult spot at present because South Africa appeared to be drifting into stagflation (low growth and high inflation).
“With a mandate to ‘maintain price stability in the interest of balanced and sustainable economic growth’ the SARB is faced with a quandary. Hiking interest rates too aggressively will throw the economy into recession‚ but doing too little could see inflation spiral out of control.
“Therefore we believe that the SARB will continue on the path of gradual interest rate normalisation with a further 50bps in rate hikes this year‚” the FNB economists said in a note.
As a result the economy was likely to flirt with recession‚ but should grow modestly this year‚ they added.
SARB likely to hike rates by another 50 basis points in 2016
The South African Reserve Bank (SARB) is likely to continue on the path of gradual interest rate normalisation with a further 50 basis points in rate hikes this year‚ according to FNB economists Alex Smith and Mamello Matikinca.
Noting that the substantial 50 basis point interest rate hike from the SARB this week had seen a modest recovery in the Rand‚ the economists said the SARB found itself in a difficult spot at present because South Africa appeared to be drifting into stagflation (low growth and high inflation).
“With a mandate to ‘maintain price stability in the interest of balanced and sustainable economic growth’ the SARB is faced with a quandary. Hiking interest rates too aggressively will throw the economy into recession‚ but doing too little could see inflation spiral out of control.
“Therefore we believe that the SARB will continue on the path of gradual interest rate normalisation with a further 50bps in rate hikes this year‚” the FNB economists said in a note.
As a result the economy was likely to flirt with recession‚ but should grow modestly this year‚ they added.
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