South Africa

FNB CEO says rate-hiking cycle coming to an end

Jacques Celliers

FNB CEO Jacques Celliers says there are clear indications that the current rate-hiking cycle is coming to an end.

The South African Reserve Bank (SARB) increased its repo rate by 0.25 basis points, taking the country’s repo rate to 7.25%.

FNB will lift its prime lending rate by 0.25% with effect from 27 January 2023 in response to the Reserve Bank’s rate hike.

The latest rate increase marks the ninth hike in the current cycle, with a total adjustment of 375 basis points since the cycle started in November 2021.

The good news for South African consumers is that the latest rate hike cycle is nearing its end.

Celliers said that while central banks may continue to raise interest rates to fight inflation, there are clear indications that this rate-hiking cycle may be coming to an end.

Higher interest rates have significantly benefited consumers who receive income from cash savings instruments.

However, load-shedding has resulted in additional unplanned expenses for households and businesses striving to stay afloat amid the disruptions.

“The recently announced double-digit increase in electricity costs will put further strain on households and businesses, especially SMEs,” he said.

“Despite these challenges, we also believe that adversity inspires innovation and new growth opportunities.”

Cilliers said he is encouraged by the efforts of individuals and businesses that continue to explore prospects in alternative energy sources like solar.

FNB chief economist Mamello Matikinca-Ngwenya

FNB chief economist Mamello Matikinca-Ngwenya said the Monetary Policy Committee (MPC) moved by less than expected.

Most economists expected the Reserve Bank to increase rates by 50 basis points, which means the 25 basis point hike was a pleasant surprise.

Matikinca-Ngwenya said it emphasised the importance of improved risk sentiment, softening price pressures and an unfolding global economic slowdown.

“This slowdown will exacerbate weaker local activity as structural impediments related to energy supply and logistics persist,” she said.

Similar to the softer magnitude of hiking in more advanced regions in December, South Africa has also lowered its pace since delivering 75bps hikes between July and November 2022.

“We still believe that the MPC will reach the terminal of the current hiking cycle in 1Q23,” Matikinca-Ngwenya said.

“If another 25bps hike is delivered in March, there should be space to support the economy before year-end.”