This is how experts think interest rates will be made on Thursday

Henry

The monetary policy committee of the Reserve Bank meets on Thursday for the first time this year. Many South Africans probably hope and pray that Lesetja Kganyago, president of the Reserve Bank, has good news for them after this meeting.

After all, the interest rate has risen by 475 basis points since November 2021 and has remained unchanged for three consecutive months.

Several economic experts believe that interest rate increases are one of the days behind them, but do warn South Africans that they are a bit hasty if they already expect an interest rate cut on Thursday.

“Consumers have to hold on for a while before they see possible relief. The interest rate is expected to be lowered only in the second half of the year,” predicts Thys van Zyl, CEO of the private investment and wealth management company Everest Wealth.

Van Zyl foresees that the interest rate will remain unchanged for the fourth time on Thursday.

“Unchanged,” was also Waldo Krugell, professor of economics at North-West University, when RNews approached him for comment on the eve of the interest rate announcement.

“There will be no reason for another increase,” Krugell explained. He predicts the first interest rate cut by the middle of the year.

“I think the Reserve Bank should and I think the Reserve Bank will leave the interest rate unchanged,” was Dawie Roodt, chief economist at the Efficient Group, on Wednesday shortly after the announcement that the inflation rate had fallen by 0.4 percentage points in December and on 5, faced 1%.

“I think if we continue on this trajectory, the chances are good that we can even see a reduction in the interest rate before the middle of the year. It takes a long time for monetary policy to have an effect, but there is progress,” assured Roodt.

Roelof Botha, economic advisor of the Optimum investment group, expects the interest rate to drop in March. Still, according to him, there is a “small possibility” that the interest rate can already be lowered on Thursday.

The reason for that, he explains, is that the inflation rate fell to 5.1% and the producer price index (PPI), “which is a leading indicator of the consumer price index (CPI), fell to 4.6%”.

Botha then also points out that some agricultural experts expect that food prices will start to fall this year. “And food is the largest single item in the basket by which the CPI is measured…

“What the Reserve Bank must do now is to lower the interest rate. The downward trajectory cannot be stopped now.

“It is totally unacceptable to keep the interest rate where it is now – the highest level in 14 years. The interest rate should now come down quickly and effectively. And it will happen. If it’s not now, it’s in March. May at the latest,” said Botha.

Until then, it’s still going to be a rip-off with many South Africans.

Van Zyl says consumers started the year under great pressure with less disposable income, more debt repayments and rising living costs. “The average salary in the country also does not increase at the same rate and is therefore not enough to counteract inflation. South Africans are getting poorer and poorer.”

RNews reported today that the average inflation rate for 2023 stood at 6% after the monthly inflation rate fell by 0.4 percentage points to 5.1% in December.

Van Zyl believes there are still risks that could push inflation further.

“The volatility of the rand will continue this year amid geopolitical tensions, including the ongoing Russia-Ukraine war and rising tensions in the Middle East. The rand is extremely sensitive to international events and local issues, and the upcoming budget and election will also have a big influence. The rand could possibly weaken to above R20.50 against the dollar this year.”

Last year, the rand performed the fourth worst among emerging market currencies against the dollar.

Van Zyl says the government’s political positions and the increase in political uncertainty are not doing the rand any favors either. “The sharp rise in government debt also does not bode well and a weakening fiscal position further reduces foreign appetite for South Africa’s government bonds. “Economic growth is expected to be slightly better than last year, but there are still numerous factors that put a damper on this.

“In the meantime, there is concern about the possibility that tax increases could be announced in February’s budget speech in an attempt to curb runaway public debt. There is the possibility that value added tax (VAT) may be increased or that new taxes such as wealth tax may be introduced.”

Just over 2.5 million people pay 84% of all personal income tax. Economists have long warned that the tax burden on a smaller number of individuals is getting heavier, with the economy not growing and many taxpayers leaving the country.

“South Africa’s port crisis and the Red Sea crisis, which increase the cost of freight transport, delay deliveries, lead to stock shortages and price increases, also continue to pose problems for the country – not only for the rand, but also bring the possibility that oil prices may rise and South Africa’s fuel prices may therefore also rise. The ongoing load shedding and rail crisis must also be tackled urgently if South Africa wants to stimulate economic growth,” says Van Zyl.