SARB Set for Interest Rate Hike as Oil Prices and Fed Move Pressure Inflation

South Africa's Monetary Policy Committee (MPC) is set to make its next interest rate decision on Wednesday, and financial markets are heavily betting on a hike. Investec chief economist Annabel Bishop says there's an increasing likelihood of a 25 basis-point increase, which would take the repo rate from 7% to 7.25% and prime from 10.5% to 10.75%. This comes as Brent crude has climbed above $106 a barrel amid escalating global tensions, adding pressure on inflation.

The US Federal Reserve's decision last week to raise its target range by 25 basis points has also contributed to the expectation of an interest rate hike in South Africa. The Fed's move is seen as bolstering the chances of a SARB increase, with Investec economist Lara Hodes forecasting that August inflation will come in at a relatively contained 4.5% year-on-year and 0.1% month-on-month.

However, not everyone agrees on the need for a rate hike. PSG Financial Services senior economist Johann Els expects the MPC to leave rates unchanged, citing stabilizing or falling inflation expectations across several measures. The Bureau for Economic Research's latest survey showed households' expectations for inflation over the next year fell from 6% to 4.9%, while their five-year expectation declined from 9.1% to 8.3%.