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Watch or read Reserve Bank Governor Lesetja Kganyago’s speech below …
By Moneyweb 25 May 2023 14:22
25 May 2023
STATEMENT OF THE MONETARY POLICY COMMITTEE
Issued by Lesetja Kganyago, Governor of the South African Reserve Bank
As we approach the mid-point of the year, persistent inflation and elevated financial stability risks continue to mark a somewhat improved global growth outlook.
South Africa’s economic conditions, however, remain poor. Growth prospects in Asia and Europe, while improved, remain negatively affected by Russia’s war in the Ukraine and heightened geo-political tensions. The United States continues to exhibit economic resilience but also specific financial fragilities.
More recent data suggests China’s growth performance will remain relatively modest, with little benefit to commodity prices.
In the developing world, many economies face high debt levels, weaker economic growth and prolonged adverse financing conditions. Commodity export prices in USD terms fell by 0.9% in 2022.
South Africa’s commodity export index is forecast to decline by 23.7% this year, a further 10.5% in 2024, and an additional 5.4% in 2025.
While goods price inflation has eased in much of the world, core inflation continues to rise, keeping consumer price inflation from falling more sharply. We expect global financial markets to remain volatile and policy rates elevated.
Taking these and other factors into account, the Sarb’s forecast for global growth in 2023 and 2024 is revised higher to 2.4% (from 2.0%), and to 2.7% (from 2.5%), respectively.
The April World Economic Outlook of the International Monetary Fund (IMF) forecasts global growth at 2.8% and 3.0% for 2023 and 2024. For 2023, the Bank’s forecast for GDP growth is slightly higher than in March, at 0.3%.
Energy and logistical constraints remain binding on South Africa’s growth outlook, limiting economic activity and increase costs.
We estimate load shedding alone to deduct 2 percentage points from growth this year.
Household spending is expected to grow very modestly in real terms, in line with a positive but weak rise in real disposable income. Investment by the private sector remains positive, in part reflecting efforts to overcome constraints in energy and transport supply.
GDP
Our GDP growth forecast for 2024 and 2025 is unchanged from the previous meeting, at 1% and 1.1%, respectively.
Economic growth has been volatile for some time and prospects for growth remain uncertain. An improvement in logistics and a sustained reduction in load shedding, or increased energy supply from alternative sources, would significantly raise growth.
The rand’s weakness provides some short-term benefit to the tradable sector.
Conversely, alongside more modest global growth rates and a lower terms of trade, higher import prices and headline inflation create downside risks to growth. Overall, domestic and global prospects appear to be highly sensitive to new shocks.
At present, we assess the risks to the medium-term domestic growth outlook to be
balanced.
Inflation
Turning to inflation prospects, our current growth forecast leaves the output gap around zero over the next three years. This implies very modest positive pressures on inflation from the forecast growth rate.
South Africa’s external financing needs however are expected to rise. Despite broadly stable oil prices, import price inflation is higher. Falling export commodity prices and weaker growth in export volumes are expected to increase the current account deficit to 2.5% of GDP this year, before expanding it further to 3.1% and 3.6% of GDP, respectively, in 2024 and 2025.
With reduced tax revenue, higher public sector compensation and state-owned enterprise financial needs, will put additional pressure on financing conditions for rand denominated bonds. The risk premium charged on rand-denominated borrowing has increased sharply.
Ten-year bond yields reached a high of 13.78% on the 23rd May, and currently trade at about 12.3%, despite the expected moderation of inflation over the forecast period.
The rand has weakened over the past year, with further sharp depreciation in recent weeks. The implied starting point for the rand forecast is R18.68 (23q2) to the US dollar, compared with R17.80 at the time of the previous meeting.
Currency markets are expected to remain volatile and sensitive to idiosyncratic shocks. At the global level, consumer price inflation in 2023 is forecast to be 7.0%, compared to 8.7% in 2022.
In the G3 economies, despite an easing in headline inflation, price pressures remain clearly evident in measures of core inflation, services and wages.
Our estimate for inflation in the G3 in 2023 is higher at 4.3% (up from 4.2%) and is unchanged at 2.1% in 2024 and 2025.
The rise in South Africa’s headline inflation rate has been shaped primarily by fuel, electricity and food price inflation.
Compared to the previous meeting, fuel and electricity price inflation is somewhat lower and food price inflation higher. Fuel price inflation is expected to be -2% in 2023 (down from -0.6%). The electricity
price forecast is also lower at 11.6% this year, 13.4% in 2024, and unchanged at 10.9% in 2025.
Local food price inflation is revised up again, in part due to the lagged impact of the weaker exchange rate and despite global food prices falling in dollar terms.
Food price inflation is now expected to be 10.8% in 2023 (up from 9.9%) and 5% in 2024 (up from 4.5%).
Our forecast for core inflation is revised up to 5.3% in 2023 (previously 5.1%), 5% (from 4.8%) and 4.6% (from 4.5%) in 2024 and 2025, respectively. Services price inflation in 2023 is expected to come in at 4.9%, unchanged from the previous meeting. Core goods inflation, however, is higher for this year at 6.3% (up from 5.9%).
Growth in average salaries and unit labour costs is higher in 2023 and 2024 and slightly lower
in 2025.
With core goods and food higher in the near term, headline inflation for 2023 is revised up to 6.2% (from 6%). Headline inflation for 2024 also increases to 5.1%, before moderating to 4.5% in 2025 on the back of easing food and fuel inflation.
Risks to the inflation outlook are assessed to the upside. Despite easing of producer price and food inflation, global price inflation remains high.
Global oil markets are expected to remain tight, with upside risk to prices. Electricity prices and other
administered prices continue to present clear short and medium-term risks. Domestic food price inflation continues to be elevated, and the risk of drier weather conditions in coming months has increased.
Load shedding may additionally have broader price effects on the cost of doing business and the cost of living, in particular as diesel consumption increases.
Given sticky petrol and food price inflation, considerable risk still attaches to the forecast for average salaries.
Average interest rate levels in major economies are higher than were projected in March.
Tighter global financial conditions raise the risk profiles of economies needing foreign capital, leading generally to weaker currencies. Given upside inflation risks, larger domestic and external financing needs, and load shedding, further currency weakness appears likely.
Higher inflation outcomes have resulted in elevated inflation expectations. Expectations for inflation in 2023 based on market surveys are 5.9%.
Long-term inflation expectations derived from the 5-year break-even rates in the bond market have sharply increased to about 6.5% (up from 5.3%).
Headline inflation is forecast to remain above the upper end of the inflation target range until the third quarter of this year, and will only sustainably revert to the mid-point of the target range by the second quarter of 2025.
The forecast takes into account the policy rate trajectory indicated by the Bank’s Quarterly Projection Model (QPM).
Against this backdrop, the MPC decided to increase the repurchase rate by 50 basis points to 8.25% per year, with effect from the 26th of May 2023.
The decision was unanimous.
At the current repurchase rate level, policy is restrictive, consistent with elevated inflation and risks. The policy stance aims to anchor inflation expectations more firmly around the mid-point of the target band and to increase confidence of attaining the inflation target sustainably over time.
Guiding inflation back towards the mid-point of the target band can reduce the economic costs of high inflation and achieve lower interest rates in the future.
Reaching a prudent public debt level, increasing the supply of energy, moderating administered price inflation and keeping wage growth in line with productivity gains would enhance the effectiveness of monetary policy and its transmission to the broader economy.
As usual, the repo rate projection from the QPM remains a broad policy guide, changing from meeting to meeting in response to new data and risks. Economic and financial conditions are expected to remain more volatile for the foreseeable future.
In this uncertain environment, monetary policy decisions will continue to be data dependent and sensitive to the balance of risks to the outlook. The MPC will seek to look through temporary price shocks and focus on potential second round effects and the risks of de-anchoring inflation expectations.
The Bank will continue to closely monitor funding markets for stress.
Lesetja Kganyago
GOVERNOR
* The next statement of the Monetary Policy Committee will be released on 20 July 2023.
FAQs
What is the repo rate in SA 2023? ›
SA Reserve Bank Monetary Policy Committee delivered the May 2023 MPC statement. The MPC decided to increase the repurchase rate by 50 basis points to 8.25% per year, with effect from 26 May 2023.
What does hikes repo rate mean? ›A hike in the repo rate means that banks have to pay more to borrow funds from the central bank. This discourages them from borrowing and leads to a reduction in the money supply in the economy, thus controlling inflation.
Did South Africa raise interest rates? ›South Africa's monetary policymakers started raising rates in November 2021 and decided on their steepest hike in a decade – 0.75 percentage points – in July.
What are the benefits of increasing repo rate? ›Repo Rate Increase Effects
This higher cost of borrowing is subsequently passed on to customers (borrowers) through rate increases. A rise in repo rate increases the rate of interest on all types of loans such as Personal Loans, Business Loans, Car Loans, Home Loans, etc.
With the next Federal Reserve meeting coming up on May 3, 2023, it's uncertain if the Fed will keep interest rates in a holding pattern through the spring. Both the Fed and experts are predicting another 0.25% rate hike for May.
How high will bank interest rates go in 2023? ›With rising federal funds rates comes an increase in savings interest rates. Federal Reserve Board members and Federal Reserve Bank presidents predict the federal funds rate will reach between 3.9% and 4.9% in 2023.
Do banks benefit from rate hikes? ›Key Takeaways. Interest rates and bank profitability are connected, with banks benefiting from higher interest rates. When interest rates are higher, banks make more money by taking advantage of the greater spread between the interest they pay to their customers and the profits they earn by investing.
Are rate hikes good or bad for banks? ›Rate hikes tend to be particularly positive for the financial sector. Bank stocks tend to perform favorably in times of rising hikes.
What happens when rate hikes go up? ›When Fed rate hikes make borrowing money more expensive, the cost of doing business rises for public (and private) companies. Over time, higher costs and less business could mean lower revenues and earnings for public firms, potentially impacting their growth rate and their stock values.
What is South Africa's highest interest rate ever? ›Interest Rate in South Africa averaged 11.93 percent from 1998 until 2023, reaching an all time high of 23.99 percent in June of 1998 and a record low of 3.50 percent in July of 2020.
Is it a good time to buy a house in South Africa? ›
Good news for hopeful South African buyers: the property market has seen record-breaking growth over the last two years. Despite the mid-2022 slowdown in demand, which was heavily impacted by rapid rate hikes, the market still achieved an impressive 238,342 transactions worth an astounding R334 billion.
Which country has the highest interest rate in Africa? ›Zimbabwe. Zimbabwe doesn't only lead Africa in interest rates. At 150%, it's the world's most expensive country to borrow money in. Notably, this current rate is an improvement from the 200% it held on to for the entire second half of 2022.
Does increasing the repo rate affect inflation? ›Description: In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.
What will happen if the Reserve Bank increases the repo rate? ›If the repo rate goes up, the bank's prime lending rate - the rate it charges customers who need to borrow money - goes up. This will affect the amount of interest that someone who has taken a bank loan will have to pay. It will also increase the monthly loan repayment amount.
What are the disadvantages to high repo rate? ›Repo rates affect lending
Often a higher repo rate is used to slow inflation. Money becomes more expensive for banks to borrow, which means your credit becomes more expensive too. In a high-interest rate environment, you should try to limit your credit.
| Loan Type | 10-Year Treasury Note High Yield | Fixed Interest Rate |
|---|---|---|
| Direct Subsidized Loans and Direct Unsubsidized Loans for Undergraduate Students | 3.448% | 5.50% |
| Direct Unsubsidized Loans for Graduate and Professional Students | 3.448% | 7.05% |
When it becomes more attractive to save money, consumers tend to spend less of it. But the Fed isn't done fighting inflation. And because of that, consumers should not expect interest rates to drop in 2023. However, rates may also not climb much from where they are today.
Will interest rates go down in 2023 or 2024? ›These organizations predict that mortgage rates will decline through the first quarter of 2024. Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point.
What is the best CD rate for $100000? ›| BEST NATIONAL JUMBO CDs | ||
|---|---|---|
| CD Bank | 5.01% APY | $100,000 |
| NexBank | 4.35% APY | $100,000 |
| All In Credit Union | 4.13% APY | $100,000 |
| Best non-Jumbo option: TotalDirectBank | 5.15% APY | $25,000 |
For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency. For checking, an ideal amount is generally one to two months' worth of living expenses plus a 30% buffer.
How long will interest rates stay high? ›
An interest rate forecast by Trading Economics, as of 12 May, predicted that the Fed Funds Rate could hit 5.25% by the end of this quarter - a forecast that has been materialised. The rate is then predicted to fall back to 3.75% in 2024 and 3.25% in 2025, according to our econometric models.
Who gets the extra money when interest rates rise? ›“The winners tend to be people who have high savings, and obviously benefit from high interest rates,” Oliver says. “The losers tend to be those with net debt. Those with more net debt tend to suffer because they pay more on interest rates servicing that debt.
Who benefits the most when interest rates go up? ›Financials First. The financial sector has historically been among the most sensitive to changes in interest rates. With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates.
Are rate hikes good for investors? ›Yes, higher interest rates tend to attract more foreign investment. That's because rising rates increase the value and demand for their own currency.
Will rate hikes affect my mortgage? ›The latest Fed's rate hike should not affect mortgage rates as it was an expected move, says Taylor Marr, Redfin Deputy Chief Economist.
Do rate hikes increase mortgage rates? ›Mortgage rates have more than doubled since the Fed's first rate hike in March 2022, and the average monthly mortgage payment for a “typical” home has risen 50 percent over that period, according to data from Zillow, which estimates the value of a typical home based on an average of homes in the middle 30 percent.
Will CD rates continue to rise? ›Following the latest interest rate hike, yields on CDs are expected to peak and then level off. According to Bankrate, by the end of 2023, the national average for one-year CDs is estimated to increase to 1.8% up from 1.38% at the end of 2022.
What does a 50 bps rate hike mean? ›A bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points. Interest rates that have risen by 1% are said to have increased by 100 basis points.
How high will rate hikes go? ›The Fed's rate hike in March lifted its federal funds rate to a range of 4.75% to 5%. Today's anticipated hike would lift the rate to a range of 5% to 5.25%.
What is the current interest rate? ›| Product | Interest Rate | APR |
|---|---|---|
| 20-Year Fixed Rate | 7.18% | 7.22% |
| 15-Year Fixed Rate | 6.62% | 6.65% |
| 10-Year Fixed Rate | 6.71% | 6.74% |
| 5-1 ARM | 5.96% | 7.60% |
How much interest will I earn on 1 million rand? ›
“Effectively, you're standing still,” Ingram points out. As an example, with an interest-focused investment of R1 million, generating a return of 6.7% over 12 months will mean a return of R67 000 for the year.
What is a good return on investment in South Africa? ›You can choose a short-, medium- and long-term investment — either way, you're sure to get great rates from us. What is a good investment rate? Investors generally consider a return of 7% per 12-month period to be a good rate of return.
What is the highest US interest rate ever? ›Interest Rate in the United States averaged 5.42 percent from 1971 until 2023, reaching an all time high of 20.00 percent in March of 1980 and a record low of 0.25 percent in December of 2008.
Will home prices drop in 2023 South Africa? ›While the current interest rate hiking cycle is expected to end as soon as mid-2023, the decline in the growth of house prices is not expected to be short-lived. “We expect nominal house prices to grow slower in 2023 and 2024 due to the weak economy, high unemployment and increasing interest rates,” said the report.
What to expect from property market in South Africa in 2023? ›SA house prices (in real terms) are deflating according to Rode's State of the Property Market Report for Q1 2023. This is being caused by the sharp rise in the prime interest rate to 11.25% by the end of March 2023 from 7% in October 2021, as well as a declining economy.
Is it a buyers or sellers market in South Africa 2023? ›The South African residential property market in 2023 is expected to be a buyer's market, as house price inflation is likely to be below inflation.
What is the best interest in the world? ›| Ranking | Country | Deposit Interest Rate |
|---|---|---|
| 1 | Zimbabwe | 110% |
| 2 | Argentina | 73.6% |
| 3 | Venezuela | 36% |
| 4 | Uzbekistan | 17.5% |
| Country | Last | Previous |
|---|---|---|
| Egypt | 87.2 | 92 |
| Equatorial Guinea | 27.1 | 42.6 |
| Eritrea | 164 | 175 |
| Ethiopia | 31.4 | 34.1 |
China is still the largest investor in Africa over the last 10 years. The US is the second-largest investor in Africa, followed by France in third place.
What should repo rate do to control inflation? ›In times of falling inflation, the RBI starts cutting repo rates with the aim of increasing money supply in the economy. Typically, there is a time lag between transmission of rates to the end customer. This happens because banks start adjusting their interest rates in response to RBI’s policy decisions.
Does repo rate affect home loan? ›
How Much Will EMIs Increase: The repo rate is directly linked to loan rates offered by the lenders. Thus, an increase in the repo will increase the borrowing cost and vice-versa. “The rate hike of 25 bps today will make EMIs expensive by approximately 2-4 per cent.
What is a good repo rate? ›Repo Rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks or financial institutions in India against government securities. The current Repo Rate 2023 stands at 6.50%. Changes in Repo Rate affect the flow of money in the market.
What is the expectation of repo rate? ›The Reserve Bank of India, in its first monetary policy review meeting in 2023-24, decided to keep the key benchmark interest rate -- the repo rate -- unchanged at 6.5 per centr. The Reserve Bank of India (RBI) is expected to maintain the current repo rate as inflation appears to be manageable.
How does increase in repo rate lead to money supply? ›Repo rate is the rate at which central bank lends money to commercial banks in the event of shortfall of funds, an increase in repo rate makes it costly for businesses and industry to borrow money. This in turn slow down the investment and reduces the supply of money.
Is higher repo rate good for banks? ›Repo rate is very closely related to the lending rates of the commercial banks. Since the Repo rate is hiked the banks will now have to pay a higher amount of interest to the RBI which in turn shall be collected from the retail/ corporate borrowers of the banks.
How much bank can borrow under repo rate? ›The rate of interest charged by the central bank on the cash borrowed by commercial banks is called the "Repo Rate". For example: If the Repo Rate is 10% and the loan amount borrowed by a commercial bank from RBI is Rs 10,000, then the interest paid to the RBI will be Rs 1,000.
What is the largest risk in repo? ›The largest risk in a repo is that the seller may fail to hold up its end of the agreement by not repurchasing the securities which it sold at the maturity date. In these situations, the buyer of the security may then liquidate the security in order to attempt to recover the cash that it paid out initially.
Will loan rates go down in 2023? ›The Mortgage Bankers Association predicts rates will fall to 5.5 percent by the end of 2023 as the economy weakens. The group revised its forecast upward a bit — it previously expected rates to fall to 5.3 percent. Meanwhile, Fannie Mae's Duncan expects rates to be in the “high 5s” by the end of 2023.
What is prime lending rate in South Africa? ›This puts the repo rate at 8.25 percent and the prime lending at 11.75 percent. The Monetary Policy Committee was unanimous on this decision.
What is the new interest rate? ›Today's national mortgage interest rate trends
On Friday, May 26, 2023, the current average interest rate for the benchmark 30-year fixed mortgage is 7.15%, up 16 basis points compared to this time last week.
What is the interest rate prediction for 2024? ›
These organizations predict that mortgage rates will decline through the first quarter of 2024. Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point.
What will the mortgage rate be at the end of 2023? ›And the Mortgage Bankers Association (MBA) is a bit more optimistic, forecasting that mortgage rates for 30-year fixed-rate mortgages will head downward in 2023 and end the year at about 5.2%.
What will the interest rate be in 2024? ›An interest rate forecast by Trading Economics, as of 12 May, predicted that the Fed Funds Rate could hit 5.25% by the end of this quarter - a forecast that has been materialised. The rate is then predicted to fall back to 3.75% in 2024 and 3.25% in 2025, according to our econometric models.
What is the best South African interest rate? ›The best 3 year fixed deposit interest rate is 10.49% offered by Sasfin. This is the effective annualised rate. You will need a minimum investment of R20,000 to get that interest rate. Check out the fixed deposit calculator to see how much interest you will earn for your investment amount.
What is the current South African lending rate? ›What is the current prime lending rate? As of March 2023, the prime lending rate in South Africa is 11.25%. It was increased by 0.25% in November 2021,0.25% in January 2022, 0.75% in September 2022, 0.25% in January 2023, and another 50 points in March 2023.
What is the highest prime interest rate in South Africa? ›South Africa Prime Lending Rate data is updated monthly, averaging 10.500 % pa from Jan 2000 to Apr 2023, with 280 observations. The data reached an all-time high of 17.000 % pa in May 2003 and a record low of 7.000 % pa in Oct 2021.
Is 5 percent a high mortgage rate? ›Right now, good mortgage rates for a 15-year fixed loan generally start in the 5% range, while good rates for a 30-year mortgage typically start in the 6% range. When this was written in late Mar. 2023, the average 30-year fixed rate was 6.32%, according to Freddie Mac's weekly survey.
Will the Fed pause rate hikes? ›Interest rates: The Fed has bumped the target federal funds rate from between 0% and 0.25% to between 5% and 5.25% since March 2022—the highest level since September 2007 and the largest 12-month increase since 1980, though the Fed indicated in a Wednesday release it will pause further hikes.
What is the highest prime rate has ever been? ›What was the highest prime rate? The highest prime rate was 21.5%, reached on December 19, 1980.
What is the lowest interest rate in history? ›While the lowest interest rate for a mortgage in history came in 2020-2021, the lowest annual mortgage rate on record was in 2016, when the typical mortgage was priced at 3.65%.
When was the highest prime rate? ›
What is the highest prime rate in history? The highest prime rate in history was on December 19, 1980, standing at a record-breaking 21.5%. The Federal Reserve set the federal funds rate guidance to sustain the 21.5% prime rate until January 1, 1981.