Interest Rates in South Africa

Apr 25, 2017

Before South Africa’s recent status downgrade, the South African Reserve Bank (SARB) indicated that inflation might decrease, moving back into the 3% to 6% target range. Usually, when inflation decreases, SARB decreases interest rates. However, bond yields have increased and inflation is expected to increase since the downgrade. This comes at an unfortunate time for our country, as it seemed as though the economy was finally starting to pick up. And while interest rates in South Africa have not been increased yet, SARB has placed a hold on decreasing it as well.

Although South Africa’s inflation rate remained below expectations in March 2017, it still remains too high, which means that interest rates are unlikely to be decreased later this year. According to an economist at BNP Paribas, Jeffrey Schultz, the potential for interest rate cuts later this year has diminished in the wake of political turmoil in our country. Yet it is still possible for the South African Reserve Bank to avoid taking any aggressive action over the coming months. “Of course the Rand remains the wild card here, though we think that a more compelling real rates story later this year is likely to help shield the currency from further significant weakness in response to the on-going ‘messy’ political environment,” Schultz said.

The SARB’s Monetary Policy Committee has managed to keep interest rates steady at its most recent meeting in March, with the repurchase rate (the interest rate at which the SARB lends money to commercial banks) remaining at 7%, and the prime lending rate (the rate at which banks lend money to consumers) at 10.5%.“Inflation has been outside the range for seven months and the bank forecasts that it will slow to less than 6% in the second quarter of the year. The change of an interest rate decrease in South Africa is limited, even as the policy-tightening trajectory may be over,” the bank said in April.

For South Africans, this may come as a bit of a relief, as the cost of living won’t drastically increase over the next few months. However, the status downgrade comes as a warning of what is to come, so we need to be wise about our money and rethink every purchase that we make.

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