A potential interest rate hike, inflation statistics for April and retail trade sales for March will be in focus on the economic front this week, with the South African Reserve Bank (Sarb) expected to raise interest rates for the fourth consecutive meeting.

The Sarb’s monetary policy committee (MPC) is expected to lift the repo rate, which affects the cost of borrowing, 50 basis points (bps) to 4.75%, having hiked it by by 25 basis points to 4.25% at its previous meeting in March.

The MPC’s latest interest rate decision, to be announced on Thursday will be informed by the more hawkish interest stance adopted by the United States Federal Reserve, as well as a sustained move weaker in the rand exchange rate since mid-April, according to the Bureau for Economic Research (BER).

Earlier in the month the US central bank announced that the target range for the federal funds rate — the benchmark for most interest rates — would increase by 50 basis points from 0% to 0.50% to the new target range of 0.75% to 1.00%.

“Expectations going into the meeting are on the hawkish side … analysts surveyed expect the MPC to increase the pace of its interest rate hiking cycle, with a 50 bps repo rate hike pencilled in …The MPC is also likely to be concerned about recent above inflation wage demands in both the public and private sector,” the BER said.

FNB analysts say the probability of a 50 bps hike is materially high and according to the bank’s Taylor rule analysis, interest rates should have been hiked by more so far, relative to what the central bank has delivered.

The Taylor rule suggests how central banks should change interest rates to account for inflation and other economic conditions.

“Since the MPC meeting in March, our inflation forecast has increased from 5.6% to 6.0% for 2022 and from 4.5% to 5.0% for next year,” said FNB.

Another important determinant to the rate hike is the consumer price index which will be released on Wednesday. The CPI for March came in at 5.9% — dangerously close to breaching the ceiling of the South African Reserve Bank target.

The 5.9% reading marked the highest annual increase since March 2017, when inflation last breached the Reserve Bank’s 3% to 6% target range.

The BER believes consumer prices will increase by 0.7% month-on-month in April, with the annual rate of increase quickening to 6%.

“Once again, higher food and petrol costs will be key inflation drivers in April. After the surge in the oils and fat category of the producer price index (PPI) in March, and amid indications of notable increases in the retail selling price of vegetable oils,” the research group said.

Analysts at FNB also said they expected headline inflation to edge up to 6% in April and average 6.3% in the second quarter, as supply-side price pressures continue to mount and spill over to core items.

Retail sales data for March, also due out on Wednesday, will hopefully be more positive after a 0.9% year-on-year decrease for February. The largest negative contributor to this decline came from general dealers, hardware, paint, glass, food, beverages and tobacco.

The decline in sales volumes is against the backdrop of rising interest rates, higher costs of living and generally low consumer confidence, the FNB analysts noted.