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Prime interest rate could hit 11% in July - Nedbank

Mar 08 2016 20:10
Carin Smith

Cape Town - The poor inflation outlook in SA, due to surging food prices and the weaker rand, will likely convince the SA Reserve Bank's Monetary Policy Committee (MPC) to hike interest rates by a further 25 basis points at each of the next three policy meetings, taking prime to 11% in July, Nedbank's economic unit said on Tuesday.

"For Sarb underlying economic and financial conditions have become even more challenging, making monetary policy choices harder," the unit commented in reaction to the latest quarterly report by Sarb.

The outlook for 2016 remains uncertain and domestic spending growth is likely to remain subdued, according to Nedbank's economic unit.

"The poor economic outlook and worries about job security will continue to weigh on consumer confidence," the unit said.

"Household finances will also remain tight as debt service costs rise along with the anticipated increase in interest rates, while rising inflation - driven mainly by drought and a weaker rand - will erode disposable income."

The unit expects that lending institutions will remain cautious by keeping lending standards tight.

The adverse global environment and lower commodity prices, coupled with persistent local infrastructure constraints and high domestic production costs will continue to hurt business confidence, according to the unit. Firms are expected to limit capital expenditure.

According to the Sarb quarterly report, domestic spending rose by a seasonally adjusted and annualised 4.3% in the final quarter of 2015 from a revised 1.4% (previously 0.8 %) growth rate in the third quarter.

It was driven by household consumption expenditure, which rose by 1.6% from 0.9% and gross fixed capital formation, which increased by 2.6% from 0.6%. Growth in government consumption expenditure also accelerated slightly to 1.2% from 1.0% over the quarter.
The ratio of household debt to disposable income eased to 77.8% from a revised 78.0% (previously 78.3%), while the debt service cost ratio rose to 9.7% from 9.6% following a further interest rate hike during the quarter.

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nedbank  |  sarb  |  interest rates  |  sa economy


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