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SA stays on the recovery path as interest rates normalise, says FNB

Following the South African Reserve Bank’s (SARB’S) decision increase its repo rate by 0.50%, FNB will lift its prime lending rate by 0.50% with effect from Friday, 20 May 2022.

Jacques Celliers, FNB CEO, says, “The SARB is normalising interest rates following the emergency rate cuts it implemented during the height of Covid-19 and the lockdown. The gradual normalisation of interest rates supports the ongoing economic recovery, particularly in light of global growth concerns and local events such as the KZN floods. The adjustment should also be viewed as a response to rising inflationary pressure as well as record-high fuel and food prices. As a business, we are committed to providing ongoing support to our Retail and Commercial clients by facilitating their economic participation and helping local communities.”

Mamello Matikinca-Ngwenya, FNB Chief Economist, says “After substantially reducing the repo rate level to 3.50% during the pandemic in 2020 (from 6.50% at the end of 2019) to provide monetary policy support, the SARB started hiking the repo rate in November 2021. At that time, the SARB’s inflation forecast was 4.3% for 2022 and 4.6% for 2023. The growth forecast was 1.7% for 2022 and 1.8% for 2023. Our view (when we called for the start of the rate hiking cycle in November last year) was that the peak impact of interest rate cuts had passed and that the SARB needed to start normalising interest rates and build monetary policy space. Since then, inflationary pressures have swelled, and recently worsened by the war in Ukraine, which has seen oil prices settle above $100 per barrel and food inflation has also heightened. As such, to preserve credibility and avoid a de-anchoring of inflation expectations, the SARB has hiked rates by 0.50%.

Since the MPC meeting in March, our inflation forecast has increased from 5.6% to 6.0% for 2022 and from 4.5% to 5.0% for next year. The 1Q22 BER survey results showed that average two-year-ahead inflation expectations lifted to 5.0%, away from the 4.5% preferred anchor. In addition, the US Federal Reserve (Fed) has cumulatively hiked by the same amount as the SARB (i.e., 0.75% cumulatively) in just two meetings and more 0.50% hikes are expected at upcoming Fed meetings. As such the SARB should continue to hike rates into next year,” concludes Matikinca-Ngwenya.

DID YOU KNOW?

FNB customers have access to nav>> suite of services for support in areas including property, vehicle, money, and other day-to-day matters:

  • nav>>Home makes it possible to view properties, get valuations on existing properties and apply for finance, and it connects local small, medium-sized and microenterprises and pre-vetted artisans with homeowners for safe, trusted, and seamless service and payments.
  • nav>>Car lets users pay traffic fines, renew their vehicle licence discs and offers a new peer-to-peer marketplace to list a vehicle in minutes and get an instant value estimate via the FNB App.
  • nav>>Money lets customers track their spending, compile budgets, and check their credit scores and net worth.
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