Higher than expected jump in interest rates signals inflation concerns

Jacques Celliers, CEO at FNB

Mamello Matikinca-Ngwenya, Chief Economist at FNB

Following the South African Reserve Bank's (SARB) decision to raise its repo rate by 0.50%, FNB will lift its prime lending rate by 0.50% from Friday 31 March 2023.

FNB CEO, Jacques Celliers says, "The SARB's 50 basis points increase is a surprise, but it could be an attempt to subdue the higher-than-expected rise in inflation. While there is still a sense that the hiking cycle may be coming to an end, the ultimate peak will be influenced by the success of efforts to curb inflation. Over this period, we will continue to support our customers with advice-led financial solutions, free smart nav» tools to help them better manage their money and our eBucks benefits for additional support with fuel and grocery expenses.

"South Africa still has a long way to go to restore growth and needs urgent measures. The country needs decisive action to address loadshedding, which continues to erode our attractiveness as an investment destination. Having said that, we're pleased to see many of our customers exploring alternative energy sources, including solar. We recently introduced a new range of credit value propositions to assist customers with funding for their energy needs," Celliers continues.

FNB Chief Economist, Mamello Matikinca-Ngwenya, says, "The MPC’s decision to lift the policy rate by 50 basis points, to 7.75%, was higher than the consensus expectation for a 25-basis point hike. In total, the repo rate has lifted by a cumulative 425 basis points over nine meetings, from an ultra-low of 3.5% in November 2021. Therefore, the MPC has managed to undo the accommodation provided during the lockdowns while also aiming at guiding inflation expectations back to their preferred 4.5% anchor.

"Ahead of this decision, the consensus view was that today’s move would mark the end of the hiking cycle, but the road ahead is precarious as a lift in the cost of doing business and a weaker rand-dollar exchange rate should support stubborn inflation in SA. Nevertheless, interest rates are likely to remain elevated over the medium term, as escalated geopolitical tensions, the cleaner energy drive as well as adverse weather patterns keep global inflation above pre-pandemic levels," Matikinca-Ngwenya concludes.