Bank of America raises South Africa interest rate outlook due to oil prices boosting inflation risk

Investing.com - Bank of America has revised its policy forecast for the South African Reserve Bank, changing its expectation for the March 26 meeting from a 25 basis point rate cut to no change, citing rising inflation risks from recent oil price surges.

The bank states that oil prices are expected to rise by 10-20% in April, which should keep overall consumer price inflation below 4%, potentially prompting the South African Reserve Bank to remain on hold.

The oil price shock has complicated the recent inflation outlook, prompting the bank to reassess its view on the country’s monetary policy.

Bank of America notes that positive real interest rates, higher gold and platinum group metal prices, and a supportive fiscal trajectory indicate that the impact of rising oil prices remains manageable. The bank suggests that the South African Reserve Bank may pause rather than resume rate hikes.

The current environment differs from the oil shock of 2022, when real interest rates were negative and the central bank implemented aggressive rate hikes. South Africa now has positive real interest rates before the shock.

The next policy decision by the South African Reserve Bank is scheduled for March 26. Previously, Bank of America forecasted a 25 basis point rate cut, but it has now revised its forecast to no change.

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