South Africa is a victim of “financial repression”, according to Mark le Roux, the head of fixed interest at Coronation Fund Managers. The term describes a situation where interest rates are kept artificially low.

At a presentation in Johannesburg yesterday, Le Roux said the condition had been imported from abroad.

Major central banks had reduced interest rates to historic lows, starting in 2008, to stimulate growth in their troubled economies. The low rates abroad sent “funds scrambling for yield globally”.

South Africa, like other emerging markets, was a recipient of these flows until rising global risks sent investors back to their traditional safe havens like American and German government bonds. But, while they lasted, the flows into local bonds boosted the rand and kept long-term interest rates lower than they would otherwise have been.

Le Roux warned that negative real rates distort markets, exposing the economy to the dangers of inflation and stagflation – low growth and high inflation.

“Negative real rates led to problems in the 1980s and it is highly unlikely there will be no repercussions this time.”

He predicted that inflation would remain above the target range until about the middle of next year.

However, some of the upward pressure is already starting to subside. – Ethel Hazelhurst