With rising oil prices and living costs threatening inflation, will homeowners see a spike in rates?
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The South African Reserve Bank (SARB) is on the brink of taking a hawkish turn, as rising inflationary pressures triggered by global tensions could lead to interest rate hikes. With an upcoming Monetary Policy Committee meeting, the current climate calls for careful consideration of the financial landscape.
Market risk expert Wichard Cilliers from TreasuryONE indicates that central banks globally may tilt towards a more aggressive monetary stance, primarily due to the escalating energy costs intertwined with the conflicts in the Middle East. He notes that oil price volatility adds complexity to the SARB's decisions.
Stephan Potgieter, chief executive of BetterHome Group Mortgage Origination and BetterBond, cautions that the ongoing uncertainties, particularly those stemming from tensions between Iran and the United States, could necessitate prolonged periods of higher interest rates.
"If inflationary pressures from fuel and transport costs prove persistent, the prime lending rate may remain unchanged for longer or even rise modestly if inflation risks intensify," Potgieter said.
Johann Els, chief economist at PSG, acknowledges that prior to recent conflicts, a rate cut seemed probable. However, these geopolitical strains have swiftly shifted the outlook for SA's economy. "The MPC is very unlikely to cut rates in the current environment," he said.
As February inflation sat at a relatively low 3%, it had initially bolstered sentiments for a potential rate cut. Yet, the turmoil in overseas markets has disrupted expectations, leading to concerns surrounding rising oil prices and increased living costs. Trading Economics echoed this sentiment, revealing that the turmoil in US-Iran relations has heightened inflationary risks through surging oil prices.
Economic analysts anticipate a significant shock at the pumps, predicting petrol prices could surge by approximately R6 per litre in April. This is projected to propel inflation rates to roughly 4.2%, well above earlier estimates of around 3.1%. Moreover, the earlier stabilising inflation expectations may soon face upward trajectories amid persistent geopolitical concerns.
Nolan Wapenaar, head of fixed income and co-chief investment officer at Anchor Capital, posits that the latest developments have generated greater uncertainty for policymakers. Despite the near-term anxieties regarding inflation, Potgieter believes that the overarching interest rate cycle should eventually trend downward, with anticipations for gradual rate cuts if stability returns later in the year.
However, Els cautions that the outlook for interest rates now hinges directly on the developments in the Middle East. If tensions subside and oil prices decrease, there may be potential for rate cuts before the year concludes.
Conversely, he warns that continued conflict and lingering inflation pressures could compel the SARB to consider rate hikes, a scenario that should not be overlooked.
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