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Home » Featured IND » Economy recovering from a low base, says FNB

Economy recovering from a low base, says FNB

Following the South African Reserve Bank’s decision to keep interest rates at their previous level, FNB confirms that it will hold its prime lending rate at present levels and will review its position after the next SARB MPC meeting in July.

FNB Chief Economist Mamello Matikinca-Ngwenya says, “Weaker global activity and slowing inflation has created space for easier monetary policy. That said, inflation targets are yet to be firmly reached and a restrictive stance will likely be upheld in the near-term. Nevertheless, some variations in the speed and depth of cutting cycles are likely to prevail. While the EU is on track to start their campaign in the middle of this year, expectations for rate cuts in the US have been pushed out and further scaled down.”

“This has a bearing on SA’s cutting cycle, and analysts have revised expectations accordingly. The consensus is for a cumulative 50bps worth of cuts from the third quarter of this year, down from 75bps in previous expectations, settling at 7% over the medium term. Should the SARB actively pursue a lower inflation target for SA, the cutting cycle will likely be even more shallow but structurally lower interest rates will be embedded in the longer term.”

“Upside inflation risk is maintained by heightened geopolitical tensions and adverse weather conditions. However, a less depreciated Rand/USD exchange rate and stable oil prices should support lower import and transport costs, further lifting economic activity. Furthermore, energy insecurity should be less binding this year as the maintenance of Eskom plants and incremental private capacity reduce loadshedding intensity. This highlights the gains from the ongoing reform agenda that should lower production costs, improve productivity, and make SA more competitive,” concludes Matikinca-Ngwenya.

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