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IOL News
5 hours ago
- Business
- IOL News
What the US Fed's interest rate decision means for South Africa's property sector
Further rate cuts this year would be beneficial for property developers and investors, as well as for stimulating domestic consumption, which could, in turn, support local economic growth. Image: Tracey Adams/Independent Media The United States Federal Reserve's decision to maintain interest rates may influence the South African Reserve Bank's (SARB) Monetary Policy Committee when it meets to announce its decision on the local repo rate at the end of next month. On Wednesday night, the US Federal Reserve kept interest rates steady but signalled possible cuts later this year. Fed chairperson, Jerome Powell, warned that rising tariffs could push inflation higher and delayed any easing - much to the dismay of President Trump, said Bianca Botes, Director at Citadel Global. She said Asian markets retreated as investors grew cautious, with stocks and currencies weakening amid uncertainty over US involvement in the Israel-Iran conflict. 'Oil prices slipped after President Trump's unclear stance on the Middle East conflict. US equity futures have edged lower, while trading in Treasuries has paused for the US Juneteenth holiday. The rand is on the back foot given the current cautious setting. It starts the day at R18.04/$, R20.68/€ and R24.19/£,' Botes said on Thursday morning. Early indicators from the SARB and various economists suggest that a rate cut may be considered at the upcoming meeting, aligning with the global trend toward a monetary easing cycle, says Dr Farai Nyika, an Academic Programme Leader at the School of Public Administration of the Management College of Southern Africa (Mancosa). He said that notably, other major economies such as Switzerland and Norway have recently cut interest rates, while the United Kingdom has opted to maintain its current rates. 'The European Central Bank also reduced its rates on June 5, 2025, reinforcing the broader trend of declining interest rates,' Nyika said. The academic said further rate cuts would be beneficial for property developers and investors, as well as for stimulating domestic consumption, which could, in turn, support local economic growth. However, he said this optimistic outlook remains uncertain. With the recent geopolitical tensions, including the outbreak of hostilities between Israel and Iran, he said this may exert inflationary pressures through increased imported fuel costs. 'This phenomenon of 'imported inflation' could compel the SARB to delay any anticipated rate cuts in July. Nonetheless, the local property market is in a stronger position than it was one or two years ago, largely due to previous rate cuts. As such, even a decision to maintain the current repo rate in July would likely be welcomed by the sector,' Nyika said. The fact that SA interest rates are higher than in the US is the result of many different factors, but in practical terms, it makes the country an emerging market investment destination, says Professor Waldo Krugell, an economist within the School of Economic Sciences at the North West University (NWU). He said it creates a demand for SA bonds, and by implication, for rands. 'To maintain the exchange rate, we don't want that differential to narrow too much. The implication is that if the Fed holds rates, the SARB is also more likely to hold rates,' Krugell said. He added that if the Fed does end up cutting rates later in the year and inflation stays low in SA, the country might see another cut or two and that would benefit the property sector. However, he said that there is a lot of uncertainty at the moment with real wars, trade wars and possibly a new inflation target in SA. Independent Media Property
IOL News
6 hours ago
- Business
- IOL News
What the US Fed's interest rate decision means for South Africa's property sector
Further rate cuts this year would be beneficial for property developers and investors, as well as for stimulating domestic consumption, which could, in turn, support local economic growth. Image: Tracey Adams/Independent Media The United States Federal Reserve's decision to maintain interest rates may influence the South African Reserve Bank's (SARB) Monetary Policy Committee when it meets to announce its decision on the local repo rate at the end of next month. On Wednesday night, the US Federal Reserve kept interest rates steady but signalled possible cuts later this year. Fed chairperson, Jerome Powell, warned that rising tariffs could push inflation higher and delayed any easing - much to the dismay of President Trump, said Bianca Botes, Director at Citadel Global. She said Asian markets retreated as investors grew cautious, with stocks and currencies weakening amid uncertainty over US involvement in the Israel-Iran conflict. 'Oil prices slipped after President Trump's unclear stance on the Middle East conflict. US equity futures have edged lower, while trading in Treasuries has paused for the US Juneteenth holiday. The rand is on the back foot given the current cautious setting. It starts the day at R18.04/$, R20.68/€ and R24.19/£,' Botes said on Thursday morning. Early indicators from the SARB and various economists suggest that a rate cut may be considered at the upcoming meeting, aligning with the global trend toward a monetary easing cycle, says Dr Farai Nyika, an Academic Programme Leader at the School of Public Administration of the Management College of Southern Africa (Mancosa). He said that notably, other major economies such as Switzerland and Norway have recently cut interest rates, while the United Kingdom has opted to maintain its current rates. 'The European Central Bank also reduced its rates on June 5, 2025, reinforcing the broader trend of declining interest rates,' Nyika said. The academic said further rate cuts would be beneficial for property developers and investors, as well as for stimulating domestic consumption, which could, in turn, support local economic growth. However, he said this optimistic outlook remains uncertain. With the recent geopolitical tensions, including the outbreak of hostilities between Israel and Iran, he said this may exert inflationary pressures through increased imported fuel costs. 'This phenomenon of 'imported inflation' could compel the SARB to delay any anticipated rate cuts in July. Nonetheless, the local property market is in a stronger position than it was one or two years ago, largely due to previous rate cuts. As such, even a decision to maintain the current repo rate in July would likely be welcomed by the sector,' Nyika said. The fact that SA interest rates are higher than in the US is the result of many different factors, but in practical terms, it makes the country an emerging market investment destination, says Professor Waldo Krugell, an economist within the School of Economic Sciences at the North West University (NWU). He said it creates a demand for SA bonds, and by implication, for rands. 'To maintain the exchange rate, we don't want that differential to narrow too much. The implication is that if the Fed holds rates, the SARB is also more likely to hold rates,' Krugell said. He added that if the Fed does end up cutting rates later in the year and inflation stays low in SA, the country might see another cut or two and that would benefit the property sector. However, he said that there is a lot of uncertainty at the moment with real wars, trade wars and possibly a new inflation target in SA. Independent Media Property
IOL News
6 hours ago
- Business
- IOL News
Sarb warns of climate change woes on financial stability
As countries transition at varying paces, Sarb Governor Lesetja Kganyago said the risk of a disorderly global shift to a low-carbon economy intensified. Image: SARB/Facebook The South African Reserve Bank (Sarb) has issued a stern warning regarding the perpetual risks that climate change poses to the financial sector. In its latest Financial Stability Review (FSR) published on Thursday, the Sarb identified climate change as one of three major threats to the financial stability of the nation, alongside the looming spectre of cyber incidents and persistently low economic growth. In the review, the Sarb highlighted a growing consensus within academic and regulatory literature that climate change introduces two primary types of risks: physical risks and transition risks. Physical risks are defined as the economic losses stemming from the increasing frequency and intensity of adverse weather events, such as floods, droughts, and storms—a trend already observable in South Africa. 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Advertisement Next Stay Close ✕ On the other hand, transition risks are exacerbated by an uncoordinated global response to climate change, where financial institutions face challenges in recognising, preparing for, and complying with evolving climate-related regulations. With South Africa's financial system significantly exposed to carbon-intensive activities and assets, the bank warned that the country was particularly vulnerable to these insidious risks. Sarb Governor Lesetja Kganyago said the risk of a disorderly global shift to a low-carbon economy had intensified as countries transition at varying paces. However, Kganyago said South Africa's financial system was so far demonstrating a high degree of resilience in response to global shocks such as intensifying global conflict with the conflict in Ukraine and the escalating war in the Middle East. 'Climate change will be an abiding challenge with impacts that include risks to financial stability. Last year, we conducted a first climate risk stress test to evaluate the resilience of systemically important banks to climate-related shocks,' Kganyago said. 'The FSR provides an overview of the lessons learned from the test. We have also published a stand-alone technical report on climate risk stress tests.' The FSR introduced an overarching framework for assessing climate-related financial stability risks and vulnerabilities in the South African financial system. The framework maps the process the Sarb follows to gather relevant information and assess the residual vulnerability of the South African financial system to climate-related shocks, after accounting for existing mitigating measures. These processes aim to align the financial stability monitoring and assessment framework with international best practice. Meanwhile, the Sarb also warned about the country's cybersecurity vulnerabilities. The FRS said the convergence of rapid technological advancements, mounting geopolitical uncertainties, and a significant skills gap in the cybersecurity industry was creating an increasingly complex cyber-environment that posed substantial risks to the financial sector and beyond. The Sarb has highlighted that this technological evolution was not merely a challenge for local firms but also exacerbates the disparities between advanced economies and emerging markets like South Africa. Current reporting shows that South Africa's cybersecurity spending consistently remains alarmingly low—less than the mature market benchmark of 0.25% of GDP annually. This deficit comes despite the pressing reality of costly data breaches. In 2024, the average cost of data breaches in South Africa was $2.78 million, a marginal decrease from $2.79m the previous year, yet a figure that remains unacceptably high. Moreover, the nation's ongoing electricity-supply challenges add another layer of complexity and vulnerability to cybersecurity efforts. While improvements have been noted, inconsistent power supply poses a latent risk to digital infrastructures, exposing them to potentially devastating cyber-attacks. The Sarb cautions that many backup power systems currently in use lacked the necessary robust security protocols to guard against such threats. As for economic growth, the Sarb said South Africa was grappling with a persistent economic malaise as recent analyses revealed that real GDP growth has averaged a mere 0.54% annually since 2018. This stagnation has entrenched a series of pressing issues, including low private investment, heightened inequality, and a rising tide of unemployment that threatens the livelihoods of millions of South Africans. The economic landscape appears even murkier with the looming possibility of the non-renewal of the African Growth and Opportunity Act (Agoa) and the imposition of tariffs on South African exports. Recent findings from the Sarb's April 2025 Monetary Policy Review (MPR) illustrated the potential repercussions of such trade adjustments through three distinct scenarios.
The Herald
2 days ago
- Business
- The Herald
Inflation steady as Reserve Bank pushes for lower target
The inflation rate was steady in May, staying below the SA Reserve Bank's 3% to 6% target range as it pushes for the target to be lowered. Headline consumer inflation stood at 2.8% year on year last month, unchanged from April and in line with the median forecast of economists polled by Reuters. SARB, which has cut interest rates at four of its last five policy meetings, stressed its preference for a lower target at its last meeting. The finance minister would need to sign off on changing the inflation target, but discussions are at an advanced stage, governor Lesetja Kganyago said last month. Inflation has been below the midpoint of the target range — the current level the SARB aims for — since August 2024, and the bank believes lowering the target would make the economy more competitive. Analysts agree. 'From the SARB's perspective this will be the ideal time to proceed with the lower inflation target, using current well-behaved inflation to anchor future expectations,' said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered. Danny Greeff, co-head of Africa at ETM Analytics, said a lower target 'could foster structurally lower inflation and interest rates over time, benefiting both the demand and supply sides of the economy'. Annual core inflation, which strips out volatile items like food and energy, came in at 3.0% in May, the same as the previous month and below analysts' expectations. Reuters
Reuters
2 days ago
- Business
- Reuters
South African rand slips as risk appetite wanes, focus on central bank review
JOHANNESBURG, June 19 (Reuters) - The rand weakened in early trade on Thursday, weighed down by risk-off sentiment as the Iran-Israel conflict continued into a seventh day and as investors awaited the South African Reserve Bank's (SARB) Financial Stability Review. At 0651 GMT, the rand traded at 18.1075 against the U.S. dollar , roughly down 0.5% on Wednesday's close, and at it's lowest level in a month. This was in line with other emerging market peers as investors fled to safe haven assets while weighing the possibility of U.S. involvement in the Iran-Israel conflict. Later on Thursday, domestic investor attention will shift to the central bank's June Financial Stability Review, in which it evaluates risks to the country's financial stability and outlines the policy actions taken to mitigate them. Last month, the SARB cut its main lending rate, but stressed that U.S. President Donald Trump's trade war and elevated uncertainty were likely to pose risks. South Africa's benchmark 2035 government bond was weaker in early deals, with the yield rising 4 basis points to 10.16%.
