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South African Rates May Be Higher by Year-End, Survey Shows

South Africa’s Reserve Bank may increase interest rates before the end of the year as the rand weakens, according to economists surveyed by Bloomberg.

Seven of the 17 economists that provided interest rate estimates through the end of the year predict the bank will raise the benchmark rate from 5 percent, according to a survey conducted during Jan. 17 to Jan. 22. The forecasts range from 5.25 percent to 6 percent, with the rest predicting the rate will stay unchanged.

Investors are already pricing in a rate increase this year, with the one-year interest-rate swap climbing 22 basis points this year to 5.77 percent as of 9:49 a.m. in Johannesburg. The rand’s 23 percent plunge against the dollar since the beginning of last year and record-high corn prices are adding to pressure on inflation and threatening the central bank’s 3 percent to 6 percent target.

Bets on higher rates are “a function of what the rand has done in the last couple of months,” Thando Vokwana, a bond trader at FirstRand Ltd. (FSR) in Johannesburg, said by phone yesterday. “The market has to be slightly negative and at some point start pricing in hikes.”

The rand has lost 3 percent against the dollar this year, the worst performer among 16 major currencies tracked by Bloomberg, and was trading as low as 10.9475 in Johannesburg today.

Forward-rate agreements starting in 12 months, used to lock in borrowing costs, rose 25 basis points, or 0.25 percentage points, to 6.56 percent this year.

Inflation Forecasts

Inflation will probably average 5.7 percent this year and 5.5 percent in 2015, according to economists surveyed by Bloomberg. A government report yesterday showed consumer prices rose 5.4 percent in December from a year ago.

Economists predict Africa’s largest economy will expand 2.8 percent this year, up from an estimated 1.9 percent in 2013. Growth (SAGDPANN) will probably accelerate to 3.3 percent in 2015, according to the survey.

South Africa’s fiscal and current-account deficits will narrow over the next two years, the survey shows. The gap on the current account will probably ease to 5.6 percent of gross domestic product this year and 5.4 percent in 2015.

The shortfall on the budget is forecast to reach 4.2 percent of GDP in the year through March 2015, above the government’s projection of 4.1 percent, and ease to 3.8 percent in the year after that.

To contact the reporters on this story: Rene Vollgraaff in Johannesburg at rvollgraaff@bloomberg.net; Andre Tartar in London at atartar@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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