Refinitiv Newscasts - South Africans face further rates hike pain

First National Bank Alaska

24/05/2023 13:01

Click the following link to watch video: https://share.newscasts.refinitiv.com/link?entryId=1_jivds80g&referenceId=tag:reuters.com,2023:newsml_RW475324052023RP1_930&pageId=RefinitivNewscasts
Source: Reuters

Description: South Africa's central bank faces a dilemma - how to keep a lid
on inflation while limiting damage to an already weakened economy with rates
hikes. David Doyle has more.
Short Link: https://refini.tv/3IDwhca

Video Transcript:

Analysts expect South Africa's central bank to hike its main lending rate on
Thursday. For citizens like nail technician Nompumelelo Nkomo in
Johannesburg's Alexandra township, that likely means more pain ahead.

Cost of living is very high. A loaf of bread, my love, is ZAR20.

South Africans have been facing rising food prices driven by the global health
crisis and then the war in Ukraine. A power crisis has also hit the economy.
Outages, known locally as "load-shedding", leave many homes and businesses
without power for ten hours a day.

It’s not helping at all. It’s killing our business especially small
business owners. I can’t afford a generator and solar whatever.

The central bank estimates the blackouts will add 0.5% to headline inflation
this year. Annual consumer price inflation is running at over 7%, above the
target range of 3%-6%. In a bid to control inflation, the South African
Reserve Bank has hiked its main lending rate 425-basis-points since November
2021. But inflation is still running hot. The bank now faces a dilemma - how
to keep a lid on inflation without further stifling economic growth. The
majority of economists surveyed by Reuters last week said they expect
Thursday's rate decision to be a 25-basis-points rise to 8%. Koketso Mano is a
senior economist at lender First National Bank.

Rates are lifting, are trickling up to levels we haven't seen in a decade,
right? So, say for example there is another hike in May, which some analysts
do expect to 8%. That should put further pressure on households and now it
becomes again important to distinguish these households, right? Your lower end
of the spectrum, already under pressure, having to deal with rising inflation,
incomes not rising as much, food inflation accounting for majority of the
basket. They’re going to feel the pressure there.

Economists say credit demand has been rising as household incomes have not
kept up with prices. Higher borrowing costs, they warn, could increase
indebtedness. At the same time, the Rand has weakened by 10% this year, making
imports more expensive in another cost likely to hit South Africans' wallets