South Africa’s central bank increased its benchmark lending rate

Wealth

SA's Increased Lending Rate

South Africa’s central bank increased its benchmark lending rate by 25 basis points to 6.75% on Thursday in a close decision, saying the longer-term inflation outlook remained elevated and that it could not risk waiting until later to act. 

South Africa’s central bank increased its benchmark lending rate by 25 basis points to 6.75% on Thursday in a close decision, saying the longer-term inflation outlook remained elevated and that it could not risk waiting until later to act. This came after Statistics South Africa announced on Wednesday that annual consumer price inflation had come in at 5.1% for October, 0.2 percentage points higher than the 4.9% for September.

S&P Global Ratings kept South Africa’s foreign-currency and local-currency credit ratings at below investment grade on Friday. S&P affirmed SA’s long-term local currency debt at BB+, the first notch of sub-investment grade. It kept the country’s long-term foreign currency rating at BB, two notches below investment grade. The outlook is stable.

The expected improved economic growth in the third quarter contributed to a rise in the Experian Business Debt Index in the third quarter of 2018. The better performing high-frequency economic data raised hopes of South Africa exiting the recession in the upcoming quarter.

After months of negotiations, leaders of the 27 remaining members of the European Union and the United Kingdom ratified the terms of the UK’s withdrawal from the EU, barring any last-minute glitches. A potential obstacle is Spain’s effort at the eleventh hour to add the status of Gibraltar, a British overseas territory, to the discussion. Obtaining an agreement in Brussels would seem to be far easier for Prime Minister Theresa May than having the pact ratified by the British Parliament next month. The proposal is extremely unpopular, with some critics saying the deal puts Britain in a worse position than if it had retained its EU membership.

Expectations that the US Federal Reserve will raise interest rates twice in 2019 are beginning to fade, as evidence of a global economic slowdown mounts. While the Fed is still expected to hike next month, the picture has become murkier for next year.

Despite the local rate hikes and S&P Global’s comments about the local economy, the rand strengthened to around R13.83 against the USD. The price of Brent crude oil dipped to below $60 a barrel to trade at around $59.64. This will support the long-awaited drop in petrol prices expected next month.


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Fanie Wasserman, B. Com (Hons)(UJ), PDFP (UOVS), CFP®fanie@securitas.co.za
Johan Steyn, RFP®, Cell. 082 680 9510, johan@securitas.co.za
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