Insights - News Blog

Silver Linings (25 July 2023) by Dr. Roelof Botha

Commentary on the South African economy and the latest MPC announcement by a well-respected economist.

Interest rate hikes put on hold

The decision by the Monetary Policy Committee (MPC) of the Reserve Bank not to raise interest rates again has provided a candidate for “good news item of the year”.

Together with the pronounced decline in the rate of both consumer and producer inflation, this was most welcome news for millions of indebted South Africans, although the current prime overdraft rate is still at its highest level in 15 years. With a bit of luck and a further drop in inflation over the next two months, rate cuts could occur before year-end.

The drop in the consumer price index (CPI) from its peak of 7.8% in July last year to the current rate of 5.4% has been rather predictable and is premised on four key fortuitous developments over the past 12 months. They are:

  • The return to price stability in the global shipping industry, as reflected in the latest reading of the Statista Global Container Freight Rate Index, which is 86% lower than the peak of $10,361 for a 40-foot container recorded in September 2021.
  • Lower oil prices, with West Texas Intermediate Oil having dropped by 40% since mid-2022
  • A weaker US dollar as a result of an imminent halting of the US interest rate hiking cycle and a return of a “risk-on” sentiment amongst many global fund managers. This has benefited several key currencies, including the rand.
  • A decline in the average monthly salary in South Africa of 4.4%, in real terms, over the past year, which has led to downward cost pressures in virtually all sectors of the economy, including the public sector

It is quite clear that the factors listed above have been primarily responsible for the escalation of inflation during 2022. The reversal of their upward trends was always on the cards and is now gathering momentum. Hopefully, the rate hiking cycle of the Monetary Policy Committee will now come to an end


Manufacturing sector continues to grow

South Africa’s factories have long since shrugged off the effects of the Covid pandemic and have entered a relentless new phase of expansion, with a new record sales performance for the first five months of the year – in real terms. It is also encouraging that the volumes of manufacturing production have now also started to move into growth territory.

May 2023 was the second month in succession that total manufacturing volumes expanded. In May, nominal year-on-year growth in manufacturing sales outperformed the consumer price index (CPI) for the 12th month in succession, with an average growth rate for the 12 months ended May 2023 of 13% - more than double the latest CPI reading.

Further rise in household disposable income

Although the Altron-FinTech Household Resilience Index (AFHRI) for the first quarter of 2023 has predictably taken a slight dip as a result of financial pressures faced by South African households, the index also contains some exceptionally good news on the continued resilience of several key indicators.

One of the shining starts in the ensemble of 20 indicators comprising the AFHRI is the new all-time record for total household disposable income, which also serves as one explanation for South Africa’s ability to avert a recession in the first quarter of the year. This key economic indicator is on course to hit the R1.1 trillion quarterly level before the end of 2023.


by Dr. Roelof Botha

Economic Advisor to Currencies Direct


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