SARB expects the South Africa's CPI inflation to edge up in near future. Therefore, in order to control the expected inflation the bank wants to increase the interest rate. Governor Kganyago cited the "real interest rate" argument for hiking rates - an argument that implies further rate hikes as inflation continues to mount. However, policy is more forward-looking and nuanced than that simplistic approach would suggest.
According to Barclays, "We see nothing in the MPC statement or the subsequent Q&A session to drive a change in our basecase view that the SARB will implement an additional 25bp hike by the end of this year and another 75bp of hikes in 2016."
SARB Governor Kganyago said in the Q&A that the SARB fully expects a re-pricing of SA assets and of the rand in particular when the Fed starts to tighten and that it will respond as appropriate, based on the full range of information available.
Barclays notes, "November for the next 25bp rate hike, but see some risk that it could come at the September MPC meeting if the Federal Reserve starts to hike rates at its meeting one week before the SARB's and this weighs on the ZAR. However, future rate decisions are likely to be very finely balanced given that the SARB's policy dilemma of low growth and rising inflation (with upside inflation risks) is unlikely to abate soon."
