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SARB’s anticipated rate pause is a relief, but risks remain

Home Business Management Finance & Investment SARB’s anticipated rate pause is a relief, but risks remain

FOLLOWING the South African Reserve Bank’s (SARB) decision to keep its benchmark repo rate unchanged, FNB will keep its prime rate at current levels and will review this position after the next SARB MPC meeting in November.

FNB CEO Jacques Celliers says, “The Reserve Bank’s decision to maintain the repo rate at its current level provides some relief to households and businesses grappling with high fuel costs and the resumption of higher stages of loadshedding. As we recently stated during our annual results, we remain encouraged by consumers’ and businesses’ resilience to maintain their economic participation despite the challenging economic environment. We continue to see sustained momentum in transaction volumes, with customers making commendable efforts to use credit responsibly.

“Similarly, many of our customers are optimising their incomes to cover both short-term and long-term objectives by selecting the most appropriate solutions in areas such as insurance and investments. We believe that as interest rates begin to normalise, consumers and businesses will have much more room to stabilise their finances to unlock opportunities for growth. However, we are cognisant that the SARB’s evaluation of interest rates must also consider external factors, such as global market trends,” adds Celliers.

FNB chief economist Mamello Matikinca-Ngwenya says, “The MPC left interest rates unchanged for the second consecutive meeting, supporting our and the consensus view that the 50bps hike implemented in May was the final lift for the current cycle. This is consistent with slower headline inflation, which has supported a softening in inflation expectations while wage growth expectations remain subdued. Therefore, tighter lending conditions and weak demand should at least assist with containing demand-driven inflation, even as the headline reflects some supply-side pressures.

“Higher global funding costs and adverse risk sentiment should be exacerbated by poor local economic growth, a worsening current account deficit, and unfolding fiscal risks. This should continue to weigh on the rand and, along with the lift in international oil prices, provide impetus to transportation costs and imported inflation – maintaining pressure on operating costs. These factors suggest that the MPC will remain alert and prepared to protect its ability to reach the 4.5% inflation target in the medium term. Ultimately, interest rates should remain at current levels over the next few quarters before a shallow cutting cycle is probable – which will likely leave rates above pre-pandemic levels,” concludes Matikinca-Ngwenya.

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