End of Reserve Bank interest rate hikes near

South Africa’s almost two-year-long hiking cycle seems to have reached its end, as experts believe the country’s interest rates have peaked.

This follows the Monetary Policy Committee’s (MPC) decision yesterday to pause the interest rate hiking cycle for the second meeting in a row, keeping the repo rate stable at 8.25%.

While this decision came as good news for many, South African Reserve Bank (SARB) Governor Lesetja Kganyago warned that this is not necessarily the end of the hiking cycle and that upside risks to the inflation outlook remain.

In particular, he is concerned about the country’s high food inflation, the volatile oil market and sticky core inflation.

“Given uncertain fuel and food price inflation, considerable risk still attaches to the forecast for average salaries,” he said.

“These risks remain, and should we see them materialise, we stand ready to act.”

However, many experts believe that despite the SARB’s hawkish stance, the country’s interest rate hiking cycle has peaked, and South Africa will start to see interest rate cuts in 2024.

Samuel Seeff – Seeff Property Group chairman

Seeff Property Group chairman Samuel Seeff welcomed the Reserve Bank’s decision to keep the repo rate unchanged, saying it is the “correct decision for the economy and property market”. 

Stability is now vital for the country, and further rate hikes would be “unnecessary pressure” and punish consumers.

“The impact of the high interest rate has set the market back three years to the pre-pandemic levels, but now with a higher interest rate,” he said. 

“After a cold and slow winter, the market would now be looking forward to a traditionally more active summer and a return of international buyers as a coastal boost.”

He said the SARB’s high interest rate exerts unnecessary pressure and “essentially punishing consumers for something beyond their control”. 

“After three years of economic stress, we cannot endure any more. The economy needs a vital boost, and if anything, we would like to see a 25 basis point drop in November ahead of the retail season.”

He said the upside for the market is that conditions remain particularly favourable for buyers almost across the board, including most areas in the Cape. 

“Although facing a higher interest rate, buyers can generally find a good deal, and if they can afford it at the current interest rate, they will benefit once the rate comes down again,” he said. 

However, the downside for sellers is that they will need to continue pricing according to current market conditions. 

“With fewer buyers and more stock to choose from, buyers are setting the pace of sales. Properties are now taking much longer to sell, and serious sellers still holding out right now may risk losing out.”

Mamello Matikinca-Ngwenya – FNB chief economist

FNB Chief Economist Mamello Matikinca-Ngwenya said the MPC’s decision to leave the rate unchanged supports the view that the 50 basis point 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,” she said.

“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.”

However, she said 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.” 

She believes these factors suggest 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,” said Matikinca-Ngwenya.

Prof Raymond Parsons – NWU Business School economist

NWU Business School economist Prof Raymond Parsons said this further ‘hawkish pause’ outcome was the right decision by the MPC, “taking into account the overall global and domestic factors presently shaping South Africa’s economic environment”. 

The MPC analysis confirmed that monetary policy is now restrictive, with real interest rates now over 3%.

However, the stability in borrowing costs experienced since May is nevertheless a positive factor in business and consumer confidence at a time when both are in negative territory and when consumer spending, in particular, is under great pressure, he said. 

“Although the slight acceleration in inflation in August suggests that inflation remains ‘sticky’, it is still anticipated to stay well within the SARB’s inflation target range of 3% to 6% in the months ahead,” he said.

However, the rand is likely to remain volatile as markets further unpack the global economic outlook, US monetary policy and domestic factors such as South Africa’s deteriorating public finances.

“With the MPC seeing inflation risks as still being on the upside, it seems likely that interest rates will remain high for longer and not be reduced until well into 2024,” he said.

Luigi Marinus – PPS Investments portfolio manager 

PPS Investments portfolio manager Luigi Marinus said the 3:2 split among the MPC members who decided to pause versus hike highlights the hawkish nature of the committee, even as inflation remains within the target band. 

He said food inflation remains a particular concern as the forecast for 2023 increased from 10.4% to 10.3%, leaving consumers, particularly those in poorer LSMs, in a more difficult situation.

“Even though the forecast for GDP growth improved to 0.7% from 0.4% for 2023, it remained unchanged at 1.0% for 2024 and 1.1% for 2025, still disappointingly low for an emerging market economy,” he said.

Marinus said the recent decline in inflation to within the target band has not yet been coupled with a reduction in interest rates as many South Africans would be hoping for since inflationary concerns persist in the economy. 


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