Commerzbank analyst Volkmar Baur anticipates that the South African Reserve Bank (SARB) will implement a 25 basis point interest rate hike at its upcoming meeting, following a surprise decision to hold rates steady in July despite market expectations for an increase at that time [1]. The market has already fully priced in a 25 basis point hike for the upcoming meeting, reflecting widespread analyst consensus [1].
The context for this expected rate hike has shifted since July, with growth in South Africa cooling more than anticipated due to ongoing geopolitical conflicts, particularly the Iran conflict, which has contributed to sustained high oil prices [1]. Inflationary pressures remain persistent, with gas prices alone projected to add approximately 0.8 percentage points to the annual inflation rate, a figure that could rise further in September depending on oil price movements [1]. The core inflation rate is expected to be 4.2%, which exceeds the central bank’s target of 3% (with a tolerance band of one percentage point above and below) [1].
Commerzbank notes that the SARB previously identified a scenario in which oil prices surpassing USD 100 per barrel would necessitate another interest rate hike [1]. Given these risks, Baur argues that the SARB should not only raise rates but also adopt a hawkish tone to prevent further depreciation of the South African Rand (ZAR) [1]. A softer stance, according to the analysis, could negatively impact the currency [1].
The August inflation figures are set to be released on the same day as the SARB meeting, with expectations that the annual rate will continue to rise [1].
CONCLUSION
Commerzbank expects the SARB to raise rates by 25 basis points and maintain a hawkish stance due to persistent inflation and elevated fuel and food risks. The market has already priced in this move, and a dovish tone could put additional pressure on the Rand. The central bank’s response is seen as critical for currency stability in the face of ongoing inflationary threats.