South Africans will have to wait for interest rate relief

Lesetja Kganyago

South Africans may have to wait longer for relief from high interest rates as there are still pockets of inflation, particularly fuel and food prices. The Reserve Bank is unlikely to cut rates before central banks in developed countries. 

This is feedback from outgoing FirstRand CEO Alan Pullinger, following the company’s results for the six months to the end of December. 

FirstRand – which owns FNB, RMB, WesBank, and Ashburton Investments – reported a 6% increase in the company’s normalised earnings.

Profit for the period grew by 7% to R20.55 billion, and total net asset value increased by 14% to R190 billion.

Pullinger cautioned that while the banking group posted strong results, the rising cost of living, driven by high interest rates, poses a threat in the form of consumers being unable to pay back their loans due to the increased interest charged on them. 

“I still think the Reserve Bank is doing the right thing by keeping a close eye on inflation and watching how it plays out,” Pullinger said. 

“There are pockets of inflation that have come down nicely, giving us some comfort that the Reserve Bank can start cutting interest rates in the second half of the year. At the same time, there are pockets of inflation going the wrong way.”

Pullinger specifically referred to rising petrol and diesel prices, which are set for another increase in March. 

Month-end data from the Central Energy Fund (CEF) shows that petrol and diesel prices are expected to rise by around R1.20 per litre. 

These increases will come after a significant increase in fuel prices in February. Petrol prices increased by 75 cents per litre across both grades, and the price of diesel rose by between 70 cents and 73 cents per litre.

The rising fuel price will have a knock-on effect on the prices of food and almost any product and service in the South African economy as it is a universal input. 

Aside from these concerns, Pullinger said it is unlikely for the Reserve Bank to begin cutting interest rates before its peers in developed markets. 

“I also think the Reserve Bank is going to be very cautious about cutting interest rates before the big developed markets,” he said. 

“Until we see the US Federal Reserve and the Bank of England cutting rates, I can’t see us cutting.” 

Pullinger said the Reserve Bank is in a tricky position where it has to ensure that inflation is fundamentally lower before cutting rates. 

It cannot afford to cut rates and then have to hike them soon afterwards as inflation spikes. 

FirstRand CEO Alan Pullinger

Pullinger’s comments are similar to those of the Reserve Bank governor, Lesetja Kganyago.

Kganyago said there would be no interest-rate cuts until inflation is brought under control, remaining resolute despite calls for him to do so ahead of national elections.

“Rates are where they are because inflation is what it is,” Kganyago told Bloomberg in an interview.

“The task of taming inflation is not yet done. Until that is done, I don’t see why there should be a change in the monetary stance.”

The central bank has kept its benchmark interest rate at an almost 15-year high of 8.25% since May, and Kganyago’s remark echoed a line he has repeatedly used to argue that it is premature to loosen policy.

The central bank prefers to anchor inflation expectations at the 4.5% midpoint of its target range. Inflation has been above that level since May 2021 and is only expected to settle there next year.

“The inflation outlook is uncertain, it’s been volatile. Until inflation stabilizes where we want it, at 4.5%, and is sustained there, we don’t see reason why we should change our monetary policy stance,” he said.

The governor listed food prices, geopolitical risks and their impact on global supply chains and energy markets as some of the upside risks to the inflation outlook.

He also said the bank won’t succumb to election pressures as the country prepares to vote on 29 May.