Rates round-up: South Africa, Philippines and Egypt hike


South Africa: The South African Reserve Bank voted on May 19 to raise the benchmark interest rate 50 basis points, to 4.75%. Four members of the five-member monetary policy committee (MPC) voted for the hike, while the fifth favoured a 25bp increase.

The decision marks the fourth time the central bank has increased rates since November, and the largest hike since January 2016. Each of the previous three increases was of 25 basis points.

The MPC cited high inflation, a weakening rand and “risks to the inflation outlook [that] are assessed to the upside”. Despite high commodities prices and an export surplus, the rand has weakened since April “due to the start of policy normalisation in major economies and the slowdown in China’s economy”.

The committee’s economic forecast put year-on-year headline inflation at 5.8% in the first quarter of 2022, and inflation “is forecast to breach the target range in the second quarter”. The country’s Statistics South Africa service registered 5.9% inflation in April. The reserve bank has an inflation target band of 3–6%.

The central bank expects inflation to decline in 2023 and 2024, nearing the midpoint of the target band in the latter year at 4.7%. However, it noted that inflation expectations had risen slightly.

The central bank projects sluggish growth, coming to 1.7% this year and 1.9% in both of the following years. The committee noted that a lack of public and corporate investment and inadequate infrastructure – especially in electricity generation – dampened growth prospects.

The next monetary policy decision is due on July 21.

Philippines: The Central Bank of the Philippines (BSP) monetary board increased its benchmark rate by 25bp on May 18, to 2.25%. BSP last increased its policy rate in November 2018, and had not changed the rate at all since November 2020.

The central bank characterised the increase as policy normalisation, and as a “prompt monetary action to anchor inflation expectations”. The BSP board believes inflation will exceed the 2–4% target band this year, at 4.6%, and remain somewhat elevated at 3.9% next year.

According to the Philippine Statistics Authority, headline inflation stood at 4.9% in April, a sharp rise from its March figure of 4%.

The central bank blamed high oil and food prices for driving up inflation. It also said second-round effects were emerging, including higher minimum wages. “The Monetary Board believes that a timely increase in the BSP’s policy interest rate will help arrest further second-round effects and temper the buildup in inflation expectations”, the BSP statement read.

The BSP also announced that it would convert its government securities purchasing window “into a regular liquidity facility under our interest rate corridor framework”. The BSP’s main monetary policy channel is its overnight reverse repurchase window.

The central bank stated that the government would settle its outstanding advances from the BSP as of May 20. The central bank advanced 300 billion pesos ($5.75 billion) to the government in 2022.

Egypt: The Central Bank of Egypt continued its struggle with double-digit inflation by ordering a 200bp rate hike on May 19. The monetary policy committee’s decision followed a 100bp hike made after an unscheduled meeting on March 21. The benchmark rate is now 11.75%.

The CBE said urban inflation had reached 13.1% in April, up from 10.5% in March – the highest inflation reading in three years. Core inflation rose to 11.9% in April, from 10.1% in March. The central bank has targeted 7% inflation by the fourth quarter of this year, within a tolerance band of 2% in either direction.

Monetary policy-makers blamed high food and commodities prices for the inflationary pressures, specifically caused by the Russia-Ukraine war and poor harvests. Egypt has in the past relied heavily on grain imports from Russia and Ukraine.

The MPC noted that Egypt was experiencing strong economic growth and a decline in unemployment. GDP grew 8.3% in the year before Q4 2021, the highest rate since 2002.

The March 21 decision set off a sharp fall in the Egyptian pound, which lost about 18% of its value against the US dollar. The exchange rate remained stable after the May 19 decision.

The International Monetary Fund announced on March 23 that Egypt had requested assistance from the fund for “support to implement their comprehensive economic program”. On May 15, prime minister Mustafa Madbouly said talks were progressing well, and he expected that “within a very few months the programme will be in operation”.



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