As the cost of living crisis continues in South Africa, consumers in the country who are paying back loans will be keeping a close eye on the interest rate decision later this week.
On Thursday, the South African Reserve Bank (SARB) governor, Lesetja Kganyago, will announce the Monetary Policy Committee’s (MPC) decision on changes to the repurchase rate (repo rate) in the country.
Currently, the repo rate is at 8.25%, with the prime lending rate at 11.75%.
At the MPC’s last meeting held in July, the rate was neither lifted nor dropped, as the slight easing of inflation allowed SARB to keep the rate unchanged, albeit sitting at an already high level.
Headline consumer inflation returned to the upper end of the inflation target range in June, easing by 0.9% to 5.4% in June, from 6.3% in May, due to softening fuel and some food prices.
Kganyago emphasised in August that the country was not out of the woods yet, adding that decisions on rates will continue to be data dependent and sensitive to the balance of risks to the outlook.
A number of analysts noted that another rate increase might have been in the cards, especially following the latest employment stats from the US, which sent shock waves to local stock markets.
The rand has generally weakened over the past year and shows high volatility in response to risk-on and risk-off episodes.
According to Nedbank’s economic unit, though, interest rates are predicted to be left unchanged later this week.
According to a report from the unit published on Friday, the group said: “We believe the peak in interest rates is behind us, even though inflation will likely increase slightly. With the impact of last year's high base fading, inflation will probably drift closer to 5% than the SARB's preferred 4.5% midpoint in the final months of this year, averaging 5.9% over the whole of 2023. Mild upward pressure will stem from higher fuel prices and rising domestic input costs due to the jump in electricity tariffs, the return of severe load-shedding, and continued rand weakness.
‘’We still expect food prices to fall further off a high base, contained by generally subdued global prices, weaker domestic demand, and reasonably healthy stock levels. Core inflation is forecast to stay below 5%, kept in check by shrinking consumer demand as the squeeze from the earlier aggressive rise in interest rates intensifies.”
“The underlying tone of the Monetary Policy Committee (MPC) will probably remain hawkish since the risks to the inflation outlook are still tilted to the upside. The rand remains vulnerable. Global risk appetites are likely to stay subdued, undermined by the evolving slowdown in the world economy and fears that sticky US inflation could keep US interest rates high for longer. Within this context, SA's escalating fiscal risks, upcoming general elections, and poor economic growth prospects will likely continue to weigh on capital inflows and the currency.
‘’The outlook for food prices is also clouded by load shedding, the threat of drier weather conditions amid the onset of El Niño, the outbreak of avian flu locally, and significant uncertainties surrounding global food security given the increased frequency of extreme weather events, the lingering disruptive impact of the war in Ukraine and the growing use of protectionist measures by various countries. If the effects of El Niño prove significant, we believe that it will slow the rate of moderation in food inflation rather than cause another surge due to significant base effects and relatively high inventories following this year's healthy crops,” the unit further stated.