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IOL News
3 days ago
- Business
- IOL News
What to expect from the South African Reserve Bank's interest rate decision this week
As the SA Reserve Bank prepares for its interest rate decision on July 31, economists discuss the potential for a rate cut and its implications for consumers facing rising food prices and inflation. Image: IOL / AI The prospects of a rate cut ahead of the SA Reserve Bank's (SARB) Monetary Policy Committee's (MPC) next interest rate decision on July 31, appear positive, but it's not a clear-cut case, economists said on Monday. 'The market currently expects a cut in the key repo rate by 25 basis points — which would be the third reduction this year,' said Thys van Zyl, Chief Executive of Everest Wealth Advisory. 'A lower interest rate would bring welcome relief to consumers.' He warned that while headline inflation remains relatively low, food price inflation is now at its highest level in over a year, which poses risks to interest rate expectations as well as consumer spending. Dr Elna Moolman, Standard Bank's group head of macroeconomic research, also believes the current inflation rate supports the case for an imminent interest rate cut, and although she expected inflation to rise over the coming months, it should remain 'reasonably benign'. However, Van Zyl warned that the central bank may be reluctant to cut rates too aggressively if global food and oil prices continue to trend upwards. 'Earlier this year, it was anticipated that the Reserve Bank could cut interest rates one or two more times in 2025," Van Zyl said. "Following the January and May reductions totalling 50 basis points, it's increasingly likely that we'll see only one more cut this year – and perhaps not before year-end.' Uncertainty surrounding the proposed 30% tariffs on South African exports to the US is another factor weighing on the economy, he added, as these could impact export-driven industries such as manufacturing, mining and agriculture. 'This uncertainty, combined with rising inflation, puts policymakers in a difficult position – trying to support growth while also protecting the rand and price stability.' Consumer Price Inflation (CPI) rose to 3% in June, up from 2.8% in May. This was the first time in three months that inflation returned to within the Reserve Bank's 3% to 6% target range. However, CPI remains well below the 5.2% seen this time last year. Food prices remain higher than expected, particularly red meat, after a bout of the foot-and-mouth disease, yet consumer goods inflation remains subdued. Johann Els, chief economist at Old Mutual, said the weak overall pricing pressure in the economy justifies a further 0.25 percentage point interest rate cut this week. ALSO READ: Understanding the impact of rising inflation on SA's interest rates Potentially lower inflation targets later in the year or in 2026 could also jeopardise the interest rate situation for South Africans going forward. South African Reserve Bank (SARB) governor Lesetja Kganyago has strongly advocated for the country to lower its inflation target from 4.5% to 3%. Experts argue that a lower inflation target would improve price stability, reduce borrowing costs, and enhance investor confidence in the long term. However, many feel it would entail some short-term 'pain' for the sake of long-term gain. Yet tightening monetary policy could be a dangerous move in the current economic climate, warns Frederick Mitchell, chief economist at Aluma Capital. 'Conventional wisdom suggests that raising interest rates can curb inflation, yet in the current environment, where inflation remains subdued but economic growth is threatened, tightening monetary policy may exact an economic toll without addressing the underlying trade issues,' Mitchell said. IOL Business
News24
23-07-2025
- Business
- News24
June inflation heats up as power, food prices bite
Leon Sadiki/Bloomberg via Getty Images Consumer price index (CPI) inflation came in at 3% for June – from 2.8% in May. Inflation has been below 3% - the bottom level of the SA Reserve Bank's target band - from March to May. But in June, food prices continued to heat up. Food and non-alcoholic beverages were 5.1% more expensive than a year ago. Beef was a big contributor, as foot-and-mouth disease fuelled price hikes. Meat prices rose by 2.2% in the single month from May to June - and were almost 7% higher than a year before. But the biggest surge over the past year, of more than 13%, was in prices of fruit and vegetables. Hot beverages were also 10.1% more expensive than a year ago. Household electricity and gas prices were 11% higher than a year before, reflecting the latest Eskom price hikes. Housing and utilities saw a month-on-month increase of 0.5%, with rent increasing 1% month-on-month. June's inflation was still tempered by lower diesel and fuel prices - but this was reversed in July with large hikes after Israeli and US attacks on Iran triggered an oil price spike. While slightly higher than May, June's inflation number is in line with expectations and should bolster the case for the Reserve Bank's monetary policy committee to cut the repo rate by 25 basis points to 7% on Thursday next week. A cut is also supported by South African inflation expectations, which in the second quarter reached an almost four-year low. Unions, households and businesses are surveyed by the Bureau for Economic Research on their expectations for inflation over the next two years, which cooled to 4.5%. Expectations about where inflation is heading play a key role in driving prices higher. When workers expect inflation to remain high, they demand higher salary increases, which in turn drive prices higher as companies must recoup these higher costs. The SA Reserve Bank has been pushing hard to lower SA's inflation target to 3% (from a band of 3% to 6%).
Daily Maverick
21-07-2025
- Business
- Daily Maverick
After the Bell: Banking payment systems and the magic of money
The big banks are the ones that really seem to benefit from our banking payment systems. They operate most of the banking cards, run the merchant's systems and then get proper access to the payment system. However, it looks like this might change soon. It has become so normal, so baked into our lives, that it's easy to forget the simple set of miracles that happen whenever you pay for something and you are not using cash. Somehow, through a series of communications between different people who don't know each other, I am able to tap my phone and get a good, strong, hot and nearly black Americano in exchange (cappuccinos, as everyone knows, are for wimps). The line of connections here, the different parties that need to communicate, is intricate and long. My phone needs to hold my credit card details, the light blue machine that I tap needs to communicate with my bank, verify the card, check there is money in it (this has been very depressing this close to the end of the month), take some of the money out of the account, pass it to someone else and tell that person that all of that has happened. In the brief seconds that the transaction and interchange takes place, I usually don't even get a chance to check my WhatsApp. Or, sometimes, my bank account to predict what the outcome of this transaction will be. So much of this is about trust. I am trusting the merchant I'm tapping my phone on. They are trusting me. We both trust the light blue machine that I am tapping. And both of us, despite our better instincts, are trusting our banks. That's just the start of the process. Banks are trusting each other as they interact behind the scenes and move numbers around. Amazingly, nothing gets lost in this process. Profitable While this is amazing, it is also profitable for some of the parties involved. The big banks are the ones that really seem to benefit. They operate most of the banking cards, run the merchant's systems and then get proper access to the payment system. However, it looks like this might change soon. The SA Reserve Bank has now said it wants to open up this system a bit — to drive the modernisation of our payment system. It would seem likely that cash might be the loser in all of this. Already, cash has become one of the more expensive ways for companies and merchants to accept payment. But the other big loser could be the big banks; they'll lose their sort-of monopoly. Instead, a host of other actors, such as fintech companies, could start playing a bigger part. I think that trust is going to be the big issue here. I have full faith in the SA Reserve Bank and the people who run it to pull this off, and to do it well. At the very least, I know their real intention is to create a payment system that works well for everyone. Strangely, it now looks like one of their big competitors will actually be cryptocurrencies. More and more people seem to be looking in that direction. Recently, The Economist investigated one currency, a stablecoin called Tether (its selling point is that it retains its value to the dollar, one stablecoin=1USD no matter what). 'Useful to criminals' The Economist described Tether as 'The financial equivalent of being able to turn up at the airport, open a secret door and go straight on to the plane, without any X-rays, passport inspections, customs controls or intrusive questions. There aren't many other products that are as useful to criminals, and as much of a threat to the financial system, that have been allowed to flourish with so little regulation.' To put this another way, when the Zondo Commission wanted to total up how much money the Guptas had stolen from us, they were able to do it using bank records. That's how they know that, in the end, the Guptas stole just under R50-billion. If the Guptas were operating now (and who is to say that someone like them is not, look at the criminal network around Tembisa Hospital and Vusimusi Matlala), we would never be able to work it out. They could be using cryptos such as Tether to literally take our money away from us. One of the things that the banking system does is keep an eye on what we're doing. It doesn't matter how many Americanos we have (although it may judge the cappuccinos). But there are thousands of people who are checking that the money flows are compliant. You might get annoyed by this, but this system also detects when someone is able to steal your credit card details and then tries to steal money from you. I'm sure that, like me, you've had a call from your bank one arbitrary Saturday afternoon to ask if you're really in Bogota buying a boat (or, in my case, a cappuccino). Grateful I have good reason to be grateful for these systems. Last year, on Black Friday, the busiest shopping day of the year, I was keeping a very close eye on our credit card. I noticed a payment to Facebook for around R20K. I was able to contact my bank and they could confirm within hours that it was a scam. Literally, the next morning, the money was back in my account. While cryptocurrencies work very differently, that moment re-instilled my faith in how the current system works. It meant that if the magic of payments had been hijacked by people-who-cannot-be-named, Dumbledore was still around to make things right. I wish the SA Reserve Bank luck with its new mission. It won't be easy. And if it fails, I wouldn't want to be them.
Eyewitness News
18-07-2025
- Business
- Eyewitness News
G20 finmin meeting ends with first communique agreement under SA's presidency
JOHANNESBURG - The third G20 Finance Ministers and Central Bank Governors Meeting has wrapped up, with a communique finally agreed on. The six-page document is the first under South Africa's G20 presidency. The diplomatic bloc failed to agree on a formal communique at the February meeting in Cape Town, with some pushback from the US on climate financing. This week's deliberations in KwaZulu-Natal saw member states stuck on sustainable financing before finding consensus with each other on a range of common global challenges. SA Reserve Bank Governor Lesetja Kganyago, Finance Minister Enoch Godongwana and Deputy Finance Minister David Masondo briefed the media on some of the outcomes of the meeting on Friday afternoon. Despite taking place under the cloud of Donald Trump's tariff wars and growing geopolitical tensions, Masondo said that the fiscal and monetary policy heads all came to the table. "The meeting delivered productive and constructive discussions on Africa, the global economic outlook and macroeconomic stability, the international financial architecture, sustainable finance, global health, infrastructure, tax, financial sector issues and financial inclusion."
TimesLIVE
14-07-2025
- Business
- TimesLIVE
G20 finance deputies aim for consensus and strong economic statement at Durban meeting
G20 finance deputies are hopeful of reaching a consensus on the remaining sticking points and issuing a strong statement on the global economy as they work on finalising the first communique under South Africa's presidency. The G20 finance and central bank deputies have convened for a two-day gathering at the Capital Zimbali in Durban, which is set to kick-start the rest of the G20 finance track meetings throughout the week. Among the issues the deputies will be engaging on over the two days will be that of finding a collective agreement on the direction of the finance track which they will provide to the finance ministers and central bank governors. Finding that agreement has proved elusive to the deputies in previous meetings, mainly due to their different perspectives on the global economy. 'It's these little ways in which countries have different views about narrating the problem to the global public that often is a source of tension but we are hopeful that we can get a communique now, we aim to work on it,' said SA Reserve Bank deputy governor Rashad Cassim, who co-chairs the meeting with National Treasury director-general Duncan Pieterse Cassim stated that they have managed to make progress in areas while it has proved more difficult to make progress in others. 'The best case scenario would be a communique but if we don't have it we will have a solid shared-summary that will articulate the problems.' He said different views around narrating issues that affect the global economy, like the ongoing conflict in Europe and Asia and climate change priorities, are the main contentious issues left to iron out in this process, though he emphasised that the finance track tries to focus on the 'big financial issues'. 'There are generally few issues about how you articulate the global economy. Countries may have differences on whether the conflicts in the Middle East, Russia and Ukraine have an impact on the economy. There will be different perspectives on how you think about that so getting consensus on how you articulate that kind of narrative is one area,' he said. 'Other areas that are highly contested (are) around the extent to which we're to deal with climate change; how much emphasis we put on climate transitions versus how much emphasis we put on climate adaptation.' Pieterse said recent discussions on virtual platforms about drafting the communique have been generally positive in the past week. 'We really want to thank the G20 members for very constructive inputs and engagements thus far, which started last week virtually, and we believe that those engagements have set a very strong foundation for our discussions over the next two days. We are very pleased with the collaborative spirit shown during the virtual discussions, and we believe that we are able to achieve agreement in most of the areas, which will enable us to provide the finance ministers and central bank governors with an opportunity to achieve the first communique under South Africa's presidency.' Pieterse noted that the meeting came at a time when the global economy was navigating uncertainty, marked by resilience in some areas but also significant challenges in others, including uneven growth trajectories, elevated debt levels and inflationary pressures, and implications of tightening financial conditions. 'At the same time, various long-term transitions including digitalisation, climate finance and demographic shifts are reshaping the foundations of our economies.' Cassim shared similar sentiments, adding that these situations underscore the importance of G20 meetings. 'G20 works best when there is an economic crisis: it worked particularly well during the great financial crisis and during Covid-19 where countries collectively could agree on regulations and transfer of resources to developing countries.' Carrim also weighed in on the potential impact of the tariff uncertainty and the global trade disruptions as a result of the tariffs imposed by the US. 'What the uncertainty does has two-sided problems. It means at a time when we need growth to be stimulated, tariff uncertainty has an effect in that it creates supply chain issues and uncertainty for inflation, though at this stage it's the tariff imposer that has to deal with the inflation more than the countries that are victims of those impositions.' Despite those challenges, Carrim added that US delegates are present and have been actively participating in the communique process. 'Remember countries have different views and you have to find common ground. We had a troika with them. They present their views, as do others, and the discussions have been very constructive.' Along with the first session of drafting a communique, Monday's meeting saw an update from the Council of Europe Development Bank (CEB) on the multilateral development bank's monitoring and reporting framework and a pandemic response financing simulation exercise facilitated by the World Bank. From Tuesday, the International Monetary Fund and the World Bank give updates on the global sovereign debt round-table. The next session will see former finance minister and current chairperson of the Africa Expert Panel Trevor Manuel give updates on the work of the panel. 'We will be getting an update from minister Manuel on this so that we can ensure that we align African priorities with the global economic reform efforts that we are discussing in the G20,' said Pieterse.
