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The SA Reserve
Bank's Thursday decision to hike the repo rate by 25 basis points to 6.75% is
already drawing a great deal of criticism from investors and market
participants, says analyst Peter Attard Montalto, head of capital markets
research at Intellidex.
In his view, the SARB's focus was looking through the short run volatility in oil and the rand to a broadly unchanged set of risks.
Intellidex agrees that a hike was required at this point.
"There was little upside or downside to waiting so might as well go now... We think market participants have too strong a focus on 2019, not the fourth quarter of 2020," explains Montalto.
"Whatever the market criticism, we think the SARB has been exceptionally consistent in communications and framework."
Minimal impact
According to Montalto, the SARB thinks cuts or hikes will have minimal impact on growth or the rand here, and that the SARB's long-run view is that growth problems are structural.
Intellidex forecasts one more 25 basis points hike to come – at most two.
"We put the next 25bp hike in March for now, but that or the January meeting will remain very much market-dependent, we think," says Montalto.
"We then see rates at neutral 'forever' in the forecast, but with strong upside risks from an eventual Moody's downgrade [at the end of] next year, as well as SOE issues and higher tariffs still to come – and a weaker rand, in the long term, itself having risks."
He adds that, if oil looks set to stay say at $60/bl and Nersa surprises on the downside, one could see a longer pause from the SARB's Monetary Policy Committee (MPC).
Sanisha Packirisamy, economist at Momentum Investments, points out that SARB emphasised the need to create more flexibility in monetary policy to deal with shocks. The SARB aims to do this by leading inflation expectations closer to the midpoint of the 3% to 6% inflation target band.
"Although the SARB acknowledged near-term risks to the inflation outlook had subsided, it warned that tighter global financial conditions, higher wage growth, international oil prices and rising electricity and water tariffs continue to pose upside threats in the long run," says Packirisamy.
"Tighter global financial conditions and SA's relatively poor macro fundamentals highlight the need to maintain an attractive real interest rate profile, but a muted growth outlook prevents a sharper acceleration in interest rates."
Momentum Investments expects a shallow interest rate hiking cycle and forecasts two further interest rate hikes during 2019 and 2020.
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