told<\/a> a Bank of America conference last week that inflation risks remain. <\/p>\n\n\n\nIn November 2023, the central bank maintained its main lending rate at 8.25% after ten consecutive hikes starting in November 2021. \u201cThere still seems to be a good case for keeping rates higher for longer domestically,\u201d Tshazibana said.\u00a0<\/p>\n\n\n\n
This is because the government needs to borrow money while interest rates are high and South Africa’s risk premium has increased. The National Treasury increased its borrowing to around R14 billion per week starting in August.<\/p>\n\n\n\n
\u201cThe underlying drivers of interest rates are going up. To maintain the value of the currency \u2013 that is, to stabilise inflation \u2013 actual rates must rise too,\u201d she said.<\/p>\n\n\n\n
Tshazibana highlighted that the Reserve Bank acknowledges the consequences of raising interest rates and maintaining them at higher levels for a prolonged time on the people of South Africa. <\/p>\n\n\n\n
She stated that certain reforms are required to decrease the country’s risk premium and probably a lower inflation target for the interest rates to decline.<\/p>\n\n\n\n
\u201cHigher for longer is not inevitable. We have to control inflation, but if we have different macro arrangements, that could be done more cheaply,\u201d she said. <\/p>\n\n\n\n
Traders and investors are predicting that the Reserve Bank will cut interest rates sooner than previously predicted, which is in contrast to the warning issued by Tshazibana. <\/p>\n\n\n\n
Traders have moved up their bets for South Africa’s first interest rate cut to March 2024 because the amount of money flowing into the economy and loans to the private sector have recorded their weakest growth in almost two years. In October, growth in money supply and private credit extension rose less than expected at 6% and 3.9% respectively, from a year earlier.<\/p>\n\n\n\n
Traders are pricing in a 25-basis-point rate cut in March, sooner than expected. Earlier, bets were for a May rate cut.<\/p>\n\n\n\n
The slowdown of both indicators may indicate that households and businesses are facing financial strain due to higher interest rates. The Reserve Bank has also warned in its Financial Stability Review that the quality of bank loan books has been negatively affected by high interest rates. <\/p>\n\n\n\n
Consequently, the bank has announced its plans to require lenders to add protectively to their capital buffers by 2025.<\/p>\n\n\n\n
\u201cThe longer interest rates remain high, combined with cost-of-living increases, the more borrowers will experience strain,\u201d the Reserve Bank said. <\/p>\n\n\n\n
\u201cThis could manifest in rising non-performing loans and payment lapses, which could reduce capital and profitability in the financial sector,\u201d it said.<\/p>\n\n\n\n
The central bank said it has decided to implement a 1% counter-cyclical capital buffer for lenders commencing 1 January 2025, to be completed by the end of that year.<\/p>\n\n\n\n
The buffer can be drawn down in the face of an economic shock, and countries who had them in place during the Covid-19 pandemic had found them to help relieve strain, it said.<\/p>\n\n\n\n
\n\n\n\nRead: Alarm bells for South Africans earning more than R20,000 a month<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"Reserve Bank Deputy Governor Fundi Tshazibana warns of a risk that could mean rates stay higher for longer. <\/p>\n","protected":false},"author":10,"featured_media":705729,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[3619,853],"class_list":["post-737087","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-sarb","tag-south-africa"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/737087","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=737087"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/737087\/revisions"}],"predecessor-version":[{"id":737183,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/737087\/revisions\/737183"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/705729"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=737087"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=737087"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=737087"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}