South African consumers should brace themselves for an interest rate hike

South African consumers should brace themselves for an interest rate hike at the end of November off the back of the Federal Reserve increase of its Federal Funds target rate by 75bps. Meanwhile, global recession risk remains high due to Chinese economic struggles, the European energy crisis and the war in Ukraine.

International Market Developments


More commentary from Fed officials added to the hawkish rhetoric surrounding US inflation. As expected, the Federal Reserve increased its Federal Funds target rate by 75bps for the fourth consecutive meeting, and further signalled the possibility of a 50bp hike (instead of 75bp) at the next meeting

The Bank of England (BOE) also hiked rates 75 bps as expected but said that peak interest rates are likely lower than currently implied by markets, signaling inflation peaking in Q4 of 2022.

The propensity for rising interest rates in the US will continue to impact global debt listed in USD. South African government yields will remain under pressure, as policy rate hikes in the United States will continue to put pressure on our currency.

Recession Risk

Chinese economic struggles, hawkish central banks, and the European energy crisis will continue to weigh on commodities prices and global economic growth.


Russia’s exit from the Ukrainian Grain Deal is viewed as catastrophic for many poorer nations, particularly in East Africa. Wheat futures continued surging on the news with prices rising by nearly 6%.

The ongoing escalation of the war in Ukraine and the associated energy crisis continues to drive volatility and uncertainty in the markets, leading to market illiquidity and rising yields.

Local Market Developments

SA’s CPI reached 7.8% y/y in July, above SARB’s inflation target range of 3-6%, and this, along with a further 75bps tightening by the Fed, is consistent with our call for another 50-75bp hike by the SARB towards the end of November.

The MTBPS signaled a substantial improvement in government finances, and the stronger fiscal path announced by the Minister of Finance suggests that SA is unlikely to see any credit rating downgrades, with more positive rating outlooks probable. The credit rating for ESKOM has improved to a positive outlook following the announcement that the State will take over one to two-thirds of Eskom debt.

The challenge for National Treasury is whether state departments can manage expenditure in a manner which is consistent with the estimates as tabled in the MTBPS. Some pundits argue that it will be difficult to contain public sector wages at a 3%-4.5% annual increase, and that further State Owned Enterprise related balance sheet challenges might “creep out of the wood work” during the fiscal year, requiring additional unplanned re-capitalization of such entities.

Finally, SARB Deputy Governor Kuben Naidoo’s comments regarding the probability of a grey-listing despite Treasury’s efforts, still remains a concern.

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