Annual inflation that surged above the Reserve Bank’s target range for the first time in more than five years in May had moved traders to price in at least one 75-basis-point increase this year. A three-quarter percentage point hike would be the biggest since September 2002, when the bank lifted the benchmark rate by 100 basis points.
Forward-rate agreements, used to speculate on borrowing costs, are now pricing in about 50 basis points of tightening at the next MPC meeting scheduled for July 21. That compares with 63 basis points before Kganyago’s comments. The market anticipates 175 basis points of hikes in total by year-end.The annual inflation rate climbed to 6.5% in May, compared with the central bank’s estimate of 6.3%, Kganyago said.
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