BUSINESS
Warning over interest rates in South Africa
South African fund managers almost unanimously agree that the next move for interest rates in the country will be down – but they warn that the full impact of the current elevated rates has still not been felt.
This means that consumer spending is likely to remain under strain for the first half of 2024, with retailers and other economic sectors likely to suffer as a result.
These are the latest findings from Bank of America’s Fund Manager Survey, looking at South Africa’s prospects going into 2024.
On key metrics, investors see South Africa’s overall performance improving, anticipating a stronger rand, lower interest rates and lower inflation in 2024. But across industries, performances will vary.
Investors anticipate strong performances in the banking, software and industrial sectors – but expect things to fall flat around real estate, telecoms and gold.
While the inflation rate is still generally seen as “just right” for the prevailing economic conditions, investors’ views are slowly shifting towards perceiving it as “too restrictive”.
Because of this, more fund managers are coming on board to adjust their expectations that the next move by the South African Reserve Bank will be to cut rates.
This does not mean the expectation is that the next meeting will be a cut, however – most economists and analysts only expect a cut to happen in mid-2024. Similarly, investors see a cut only happening in Q2 2024.
What this does signal, however, is that investors unanimously agree that the hike cycle has now ended. The vast majority (93%) anticipate a cut as the next move – and even the balance still expects a hold at least.
None of the investors surveyed expect a rate hike, which is a significant shift from the October and November surveys, where some (22% and 14%) still anticipated another hike.
While it is certainly good news for households that interest rates are unlikely to shift higher, the current rate remains restrictive and is keeping the pressure on those who have debts to pay.
According to Reserve Bank Deputy Governor Fundi Tshazibana, risks remain that could keep the rates at these restrictive levels for longer – particularly the government’s borrowing patterns as well as South Africa’s risk premium.
In November 2023, the central bank maintained its main lending rate at 8.25% after ten consecutive hikes starting in November 2021.
Reserve Bank governor Lesetja Kganyango also warned at the central bank’s last meeting in November that risks to the rate are on the upside, flagging prevailing infrastructure and electricity supply issues.
Read: The one thing that could hold the SARB back from cutting interest rates in South Africa
Full Story Source: Warning over interest rates in South Africa – BusinessTech