We forecast that the Central Bank (CBI) Monetary Policy Committee (MPC) will decide to raise the CBI’s policy interest rate by 0.25 percentage points at its next rate-setting meeting, scheduled for 6 October. The CBI’s key interest rate – the rate on seven-day term deposits – will therefore be 1.5% and will have risen by 0.75 percentage points since May 2021.
Uncertainty about the Delta variant of the COVID-19 virus has abated, and the economic recovery appears to have solidified. At the same time, inflation has been recalcitrant, the short-term inflation outlook has deteriorated, and the breakeven inflation rate in the bond market has eased upwards. Given the MPC’s apparent desire to see the real policy rate rise towards zero sooner rather than later, and given that two of its members would have preferred a larger rate hike than was ultimately decided upon in August (even though uncertainty was more pronounced then than it is now), a rate increase next week seems to be the obvious outcome.