The South African Reserve Bank (SARB) will likely raise its key repo rate by a total of 75bp this year, starting with a 25bp hike in July, according to Bank of America Merrill Lynch economist Matthew Sharrat, quoted by Business Report. By the end of 2016, the repo rate is expected have gone up by a total of 150bp from the current level of 5.75%.

SARB hiked the repurchase rate, at which it lends rands to private banks, by a total of 75bp last year to curb rising inflation and a depreciation of the local rand currency. In November, the rate-setters reiterated their view that interest rates will have to be raised further over time, with the timing depending on the evolution of inflation expectations, the speed of monetary policy tightening in the US and the domestic economic conditions.

Inflation pressures eased substantially in line with the global oil price slump, with the annual inflation rate now expected to drop to as low as 4.2% by April, according to Sharrat, from 5.8% in November and after staying above the central bank’s upper target range of 6% from April through August 2014. This will ease the pressure on SARB to hike rates when it meets at the end of this month and throughout the first half of the year, giving it the chance to support the sluggish domestic economy, plagued by power supply constraints and other structural deficiencies. However, with the base effect fading out, inflation is expected to rise sharply from late 2015.

According to Sharrat, the average annual inflation for this year will be at around 4.9%. SARB’s latest forecast from November envisaged an average annual inflation of 5.3% for 2015, down from a projected 6.1% for 2014.

Regarding economic growth, Sharrat predicted that an estimated 10% drop in rand oil prices could boost GDP growth by up to 0.4pp in six to 12 months. In November, SARB forecast growth to accelerate to 2.5% this year from a projected 1.4% in 2014, supported by improved industrial relations, but held back by domestic structural constraints, as well as by a weak global economy and subdued non-oil commodity prices.