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SA can reap the benefits of commodity boom despite crosswinds, says FNB

SA can reap the benefits of commodity boom despite crosswinds, says FNB
24-03-22 / Staff Writer

SA can reap the benefits of commodity boom despite crosswinds, says FNB

Johannesburg - Following the South African Reserve Bank’s (SARB’s) decision to raise its repo rate by 0.25%, FNB will adjust its prime rate by 0.25% with effect from Friday, 25 March 2022.

FNB CEO Jacques Celliers says, “Heightened volatility in equity markets around the world in recent weeks indicates powerful cross-currents at work. Inflation, tighter monetary policy, and the downstream impact of international conflict are examples of the contributing factors. Despite this, we are seeing a sustained return to improved economic growth in South Africa, driven by higher commodity prices and a return to pre-pandemic conditions.

“By raising their repo rate, the SARB maintains its growth-friendly stance. The SARB is taking additional steps to combat domestic inflation and to align with higher rates in developed markets. For consumers, this means that 2022 may provide more economic opportunities, but will necessitate a disciplined approach to money management,” says Celliers.

Mamello Matikinca-Ngwenya, FNB Chief Economist says, “The MPC’s decision to hike the repo rate by 25bps to 4.25% was in line with our and consensus expectations. Recent upward adjustments to inflation forecasts should place further upward pressure on interest rates, and additional 25bps hikes are anticipated at each of the remaining meetings for this year. We remain cognisant that while the MPC has given guidance that it aims to contain inflation expectations and prevent steep interest rate hikes in future, 
it will also avoid choking the ongoing fragile economic recovery.

The economic recovery faces several headwinds from persistent issues such as energy shortages and geopolitical tensions. In addition, consumer and business confidence remains depressed and the labour market is not expected to be very supportive to the recovery. Furthermore, the spike in the cost of living should dent discretionary spending. Consumer inflation has been lifted by elevated fuel, food and electricity prices - all of which are considered supply-side inflation which the central bank should theoretically look through. However, a larger proportion of higher input costs could be passed onto consumers and the petrol price shock could further lift inflation expectations. The MPC will continue to be concerned by this, but weaker growth should support a gradual hiking cycle,” concludes Matikinca-Ngwenya.

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