Interest rates will be higher for longer – Standard Bank CEO

Interest rates globally and in South Africa will be higher for longer as geopolitical tensions, poor economic performance, and uncertainty in developed markets will keep inflation high and force interest rates to remain elevated and perhaps even increase. 

This is feedback from Standard Bank Group CEO Sim Tshabalala, who spoke to CNBC Africa on the sidelines of the IMF-World Bank Annual Meetings in Marrakech. 

Tshabalala emphasised the impact of geopolitical tensions and conflicts on the continent of Africa, particularly the war in Ukraine and instability in the Middle East. 

This will heavily impact trade and investment across the globe at a time when the global economy is slowing down. 

“Interest rates are going to be higher for longer, including in Africa, as a consequence of the broader environment,” Tshabalala said. 

The CEO of Africa’s largest bank by assets was particularly concerned about the increase in global oil prices due to geopolitical conflict. 

This will drive inflation in countries reliant on oil imports, such as South Africa. In turn, the price of goods and services that are transported will increase. 

Worryingly for states with high debt levels, such as South Africa, higher interest rates for longer will make raising capital, attracting investment, and paying off existing debt more difficult. 

However, South Africa may benefit from the rise in prices of other commodities, such as coal, which may strengthen towards the end of 2023. 

Tshabalala is also concerned about the impact of a slowing global economy, as South Africa and its African peers are vulnerable to external shocks. 

The uncertainty surrounding whether the Federal Reserve will be able to tame inflation without triggering a recession is also a major factor in pushing central banks to keep rates higher for longer. 

Reserve Bank will hike interest rates again

Tshabalala’s comments echo those from economists at the Bank of America, who said the South African Reserve Bank (SARB) will hike interest rates by 25 basis points in November due to the rise in global oil prices, a bird flu outbreak, and a volatile rand. 

This was contained in Bank of America’s Global Research Emerging Insight report, South Africa – All Change, Not Done Hiking.

“A combination of rising oil prices, a higher-for-longer rates narrative and fiscal risks in emerging markets are likely to weaken emerging market currencies further, and a stronger dollar should continue to weaken the rand, in our view,” Bank of America said. 

Due to rising international oil prices, local fuel prices in South Africa increased by 7.5% in September and 4.7% in October.

Bank of America (BofA) now estimates that headline inflation will reach 5.2% in September, 5.7% in October, and an average of 5.6% in the fourth quarter. This is up from their previous estimate of 5% inflation at year-end.

“The oil supply shock is negative for emerging market currencies, including the rand, because the dollar is likely to remain strong till year-end.,” senior economist Tatonga Rusike said. 

“We maintain our view that dollar weakness will bring rand strength into 2024.” 

Apart from rising oil prices and higher inflation pushing the SARB to raise rates, Bank of America expects the Federal Reserve to hike rates by 25 basis points at its meeting in November. 

The combination of rising oil prices and higher-for-longer rates in the US and other developed markets will likely weaken the rand further in 2023, raising the prices of imported goods. 

This trend will continue until the Federal Reserve cuts rates, which Bank of America expects to begin in June 2024.