It does not rain but pour for South African consumers, as another interest rate hike has been predicted for the next South African Reserve Bank’s (SARB) Monetary Policy Committee Meeting (MPC), due to take place at the end of the month.
The Ides Of March for consumers in South Africa came quickly, who had to deal with a massive fuel price increase while businesses contended with the rolling black outs imposed by the ailing state owned power utility, Eskom, who has been rocked with corruption allegations made by the outgoing CEO, Andre de Ruyter.
On Tuesday, Statistics South Africa painted a bleak picture as it announced that the country’s economy had contracted 1.3% in the fourth quarter of 2022.
Analysts further rubbed salt in the wound, as they predict the country would fall into a technical recession as the current quarter of 2023 (Q1) continues to be hammered by load shedding.
On Wednesday, the RMB/BER Business Confidence Index (BCI) showed that business confidence in South Africa remains gloomy and firmly in contractionary territory as load shedding took a toll.
As the week went on, it the economic situation for South Africa continued to go downhill, as the country woke up to the news on Thursday that S&P Global downgraded South Africa’s credit ratings outlook from positive to stable as the continuing rotational load shedding weighs on economic activity.
A setback of note to the country’s outlook, after S&P had upgraded it to positive in May last year.
It had come with the hope of an upgrade of the country's credit rating in the near future.
S&P issued its ratings update late on Wednesday night, saying economic growth in South Africa was facing increasing pressure from infrastructure constraints, particularly severe electricity shortages.
The rating agency affirmed South Africa's long-term foreign and local currency debt ratings at “BB-” and ‘BB’, respectively, meaning the country was rated below investment level.
However, it warned that it could lower them if the government's reforms to address the power crisis did not progress as planned.
Hayley Parry, Money Coach and Facilitator at 1Life’s Truth About Money told Business Report that it appears that there will be a lot more ‘belt-tightening’ when it comes to consumer finances as there still is some turbulence ahead.
“It feels like we are living inside a roller-coaster as a South African, and our economy is reflecting the same. The contraction announced on Tuesday was far higher than what economists had predicted. This is not good news as they are already predicting that the current quarter that we are in is not looking good as well, thanks to the rolling blackouts that we as a country are facing,” Parry said.
“The reality is that this is impacting every aspect of our lives, including the country’s business sector. The cost of producing goods and services is going to increase as businesses have to compensate for not having electricity and pay more for coming up with their own solutions to deal with the energy crisis. Those costs are, unfortunately, being passed on to the consumers,” she further said.
Interest rate hike once again
While all of the above already showed for a dull year ahead, come month end, consumers’ wallets should be prepared to take another hit, as Frank Blackmore, Lead Economist at KPMG told Business Report that South Africans could see a consensus of another 25 basis point (bps) hike made at the MPC's meeting.
The SARB’s repurchase rate (repo rate) is currently 7.25%, and a 25bps increase would see the rate increase to 7.50%.
That would mean that the prime lending rate in the country will increase from 10.75% to 11%.
Blackmore said, “Although we have seen a reduction in headline inflation from the 7.8% in July 2022 to the current value in January of this year of 6.9%, the Reserve Bank has made it very clear that their further decisions regarding the repo rate would be dependent on inflationary data coming out. We know that the value of January’s data is way above the 3-6% target range of the Bank’s.”
He further said that in addition, the inflationary expectation, which the bank collects via surveys is still higher than the mid point range of 4.5%.
Blackmore said, “As long as those two factors remain as they are, we can expect further increases in the repo rate as the bank will try to bring inflation down to manageable levels.
Listen to Blackmore further explain how the recent GDP contraction and global events could impact the MPC’s decision below:
BUSINESS REPORT