JOHANNESBURG, Sept 21 – Morgan Stanley now expects the South African Reserve Bank (SARB) to raise interest rates this week, reversing its previous forecast for a hold as renewed oil price pressure raises the risk that inflation will remain above target for longer, Bloomberg news reported on Monday.
Analysts Andrea Masia and Arnav Gupta expect the SARB to increase its policy rate by 25 basis points to 7.25% on September 23, describing the move as insurance against further supply shocks that could delay inflation’s convergence toward the central bank’s 3% target.
The change in forecast follows a renewed rise in oil prices, which Morgan Stanley expects will lead to an upward revision in the SARB’s near-term inflation outlook.
The analysts said the case for tighter monetary policy does not stem from a deterioration in inflation expectations or evidence that the initial energy shock is spreading broadly across the consumer-price basket. Instead, their concern is that sustained energy-price pressure could leave inflation above target for an extended period.
“The longer that happens, the greater the risk that those expectations become unanchored,” Masia and Gupta wrote in a report to clients seen by Bloomberg.
Morgan Stanley expects the SARB to place weight on that risk as it seeks to reinforce credibility around the 3% inflation target, which became the central point of its monetary policy framework last year.
Higher oil prices also weaken the case for maintaining the policy rate unchanged for an extended period, according to the analysts. Rising inflation would lower real interest rates, reducing some of the restraint currently being provided by monetary policy.
The international rate environment has also become less supportive of a South African hold. The Federal Reserve raised its benchmark interest-rate range by 25 basis points to 3.75% to 4%, while the European Central Bank raised rates on September 10 and the Bank of Japan followed with a rate increase on September 18.
Morgan Stanley said the combination of higher global interest rates and elevated oil prices could leave the rand with less room to absorb another external shock, although the currency has remained relatively resilient. Reuters reported on September 21 that the rand was trading steadily ahead of South Africa’s inflation data and the SARB’s upcoming policy decision.
The SARB’s Monetary Policy Committee is scheduled to announce its decision on September 23, with the central bank currently maintaining a policy rate of 7%.
Beyond the September meeting, Morgan Stanley expects the SARB to keep borrowing costs unchanged through 2027.
Markets are currently pricing roughly 75 basis points of additional tightening, according to the analysts. Morgan Stanley, however, sees limited scope for South African short-term rates to fully reflect those expectations given recent domestic economic data and its broader outlook.
