South African interest rates

The average South African may be less informed and therefore unaware of the importance of interest decisions made by a committee chaired by the Governor of South Africa’s Reserve Bank, Lesetja Kganyago.

Later today the Monetary Policy Committee will be meeting to make this decision.

Property owners, bonded or not, big or small, should be acutely aware of the impact interest rates have on yields, tenant default rates, operational costs and debt servicing costs.

Ultimately South Africa is facing an upward cycle in interest rates that has started gently, but may end in tears for some property owners. The key is to be prepared.

The US Fed did not raise interest rates last week which has taken some pressure off emerging economies like South Africa. However, the weakening Rand will fuel inflation in our domestic economy and the US Fed still has time later this year to increase interest rates.

These two key exogenous factors may weigh heavily today against weakening domestic growth and slow household credit extension. The indebted consumer or business can ill afford a rate increase coupled with a weakening Rand.

Economics is a balancing act based on historical data that comes with experience. We have seen cycles exactly like this before, the only difference is that China is now the world’s second largest economy behind the USA and a very globally dominant player  in international financial growth and stability. The growth rate of the Chinese economy directly impacts growth in resource dependent economies like South Africa.  

Our economy is fuelled by China’s growth in manufacturing output and domestic infrastructure development. Factory production and domestic fixed asset investment in China has weakened consistently since 2010.

Interest rates rise during tough times and only fall in times of crisis. During the good times when money is free and easy – who cares?

The Monetary Policy Committee of the South Africa Reserve Bank is meeting later today and all eyes are on them. Deal Core will keep you informed of the decision whether or not to increase interest rates.