Bottom line:
As a result of inflationary pressures, the standard expectation until recently had been that the Reserve Bank would be inclined to increase the repo rate by a further 0.25% to 8.00% from 7.75% at its forthcoming MPC meeting this week. Such an increase would be in line with the magnitude of the increases announced by the Federal Reserve Board, Bank of England and European Central Bank in recent weeks. However, sentiment regarding prospective rate increases has shifted dramatically in recent weeks towards expecting the Bank to raise the repo rate by at least 0.50%. This situation has come about primarily because of the marked further depreciation in the rand against all currencies in the past fortnight, of between 5% and 7%. On forward markets, the mood has turned towards expecting not just a 0.50% increase at the MPC meeting on Thursday, but a further two sets of increases of 0.25% at forthcoming MPC meetings in July and September.
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