Economists expect the South African Reserve Bank’s Monetary Policy Committee to raise interest rates by 25 basis points when it announces its decision on Wednesday.
The expected hike comes amid persistent inflationary pressures and uncertainty linked to the ongoing conflict between the United States and Iran.
South Africa’s inflation rate is currently at 4.3%, above the Reserve Bank’s 3% target. The policy rate stands at 7%, while the prime lending rate is 10.5%.
Analysts say elevated international oil prices are also adding to inflationary pressures. Brent crude rose above 120 US dollars a barrel earlier this month as tensions in the Middle East intensified.
Standard Bank Head of Macroeconomics, Fixed Income and Currency Research Elna Moolman says South Africans have already felt the impact through higher fuel prices.
Moolman says the Reserve Bank could raise rates by another quarter percentage point, although there has so far been limited evidence of higher fuel costs feeding through into other prices.
She says the longer fuel prices remain elevated, the greater the risk of so-called second-round inflationary effects, which could prompt further action by the central bank.
Makwe Fund Managers’ Makwe Masilela says the current inflation rate, together with higher interest rates among some major trading partners, could also influence the MPC’s decision.
Masilela says the Reserve Bank would not want to fall behind the curve as oil prices remain elevated.
Several central banks have tightened monetary policy this month in response to inflationary pressures and supply shocks.
The US Federal Reserve has raised its interest rate by 25 basis points, marking its first increase in three years, while the Bank of Japan has also raised rates by 25 basis points for the first time in more than three decades.