Rebounding economy creates great opportunities
Jacques Celliers, CEO at FNB
Following the South African Reserve Bank’s decision to keep interest rates unchanged, FNB will maintain its prime lending rate at 7% and will review its position after the next SARB MPC meeting in July.
Says FNB CEO Jacques Celliers: “The rebound in economic conditions and phase 2 roll-out of the vaccination programme are encouraging developments in the country’s efforts for sustainable growth. As the country prepares to minimise the impact of a third-wave, it’s vital for both government and business to prioritise a unified response to continue protecting economic gains and livelihoods.
The SARB’s measured response to this pandemic has been an important lifeline for consumers and business that are servicing debt, and now many have started rebuilding financial reserves. Both rainy-day savings and longer-term investments should be top of mind as the economy recovers. We are seeing growing inflationary pressures in several international markets and the possibility of lower interest rates in future has narrowed. We urge our customers to make use of our digitised services focussed on budgeting, saving, and investing,” adds Celliers.
FNB Chief Economist, Mamello Matikinca-Ngwenya says that, “The MPC’s decision to keep the repo rate steady at 3.50% was in line with our and the market’s expectations, justifiably delaying the 25bps hike suggested by its Quarterly Projection Model (QPM) in the previous meeting. This implies that the MPC is conscious of the underlying economic weakness and the need to provide monetary policy accommodation for as long as possible. This year's expected solid economic growth rebound comes off a shallow base in 2020 and marks a protracted recovery to pre-pandemic 2019 levels.
The pandemic-induced recession of last year was deep, and its impact lingers. The labour market was worse off by 1.4 million jobs at the end of 2020, and the official unemployment rate stood at 32.5%, materially above its long-term (1994-2019) arithmetic average of 24.3%. There is continued spare capacity in the economy, with manufacturing utilisation having measured 74.0% in 1Q21 relative to 77.5% in 1Q20. The accelerating consumer inflation is largely pushed up by transitory factors related to the general base effects of last year and rising fuel prices, both of which should begin to taper off from 2H21. We expect inflation to average 4.0% this year and around 4.5% over the medium-term horizon. As such, there is still some room to keep the repo rate at current levels for at least the next 12 months,” concludes Matikinca-Ngwenya.
