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Upward pressure on interest rates is not fully neutralised

26 May 2023 FNB

Following the South African Reserve Bank’s (SARB) decision to increase its repo rate by 0.50%, FNB will lift its prime lending rate by 0.50% with effect from Friday, 26 May 2023.

FNB CEO, Jacques Celliers says, "Unfortunately, the convergence of global and domestic shocks has created a complex web of inflationary pressures in South Africa, resulting in a longer-than-anticipated rate-hiking cycle. Therefore, the central bank is obligated to implement appropriate policy interventions and act decisively when necessary.

"Moreover, the regular and extended hours of loadshedding pose an enormous risk to South Africa's outlook, despite the fact that many households and businesses continue to make commendable efforts to diversify their energy sources. At this time, it is crucial for consumers and businesses to continue being proactive in managing their finances to navigate this difficult economic cycle," Celliers continues.

FNB Chief Economist, Mamello Matikinca-Ngwenya, says, “The MPC decided to hike the repo rate by an additional 50bps, which was expected by some market analysts. The MPC has now unleashed 475bps worth of hikes cumulatively over its 10 meetings since November 2021. This reflects the MPC’s endeavour to remove the accommodation provided during the lockdowns, cater for sticky inflation and the upside risk presented by a weaker exchange rate.

“Escalated geopolitical tensions only serve to compound inflationary pressures, increasing frictions in global production as “reshoring” takes shape, threatening existing trade agreements and weighing on currencies as diplomatic fallouts occur, as we have experienced in SA. Furthermore, while the prevailing local supply-side issues around energy and logistics are not considered to be within the ambit of monetary policy, they do adversely impact inflation and demand, by lifting the cost of living and operations. Therefore, further intensification of load-shedding this winter exacerbates upside risk to inflation, and the upward pressure on interest rates is not fully neutralised. We still believe the MPC has reason to pause, to reflect on the delayed impact of the cumulative rate increase, but also remain cautious about the road ahead,” concludes Matikinca-Ngwenya.

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