Citigroup Expects South Africa Interest Rate Increase Next Week

South Africa’s central bank will probably raise interest rates by 25 basis points next week and again in September, according to Citigroup Inc.

The Reserve Bank will increase rates by 100 basis points in the next 12 months, Gina Schoeman, an economist at Citigroup in Johannesburg, told reporters on Thursday. An increase in rates by the central bank this month will show that the bank is “maintaining its independence and its credibility,” she said.

The bank, which will announce its next rates decision in Pretoria on July 23, has kept its benchmark repurchase rate unchanged at 5.75 percent for a year as the economy recovers from the slowest growth since a 2009 recession. Inflation quickened to 4.6 percent in May from 4.5 percent in the previous month.

Inflation will peak at 7.2 percent in the first quarter of next year and stay above the upper end of the central bank’s 3 percent to 6 percent target band for the rest of 2016, according to Schoeman.

The monetary policy authority has little flexibility to continue the pause in its rate-hiking cycle “but we are not on any pre-set course and we remain data dependent,” Reserve Bank Deputy Governor Daniel Mminele said in an interview on July 7. “We are ready to act when we think that the situation warrants it.”

The South African economy, Africa’s second-largest, will probably expand 1.7 percent this year, with rolling blackouts by power utility Eskom Holdings SOC Ltd. shaving one percentage point off growth, Schoeman said. Gross domestic product will grow by 2.1 percent next year and by 3 percent or more in 2018 as the constraints in electricity supply ease, she said.

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