Nedbank Predicts No Further Interest Rates Increases For 2018

Interest rates in South Africa will remain unchanged into late 2019, Nedbank Group's Economic Unit forecasted on Monday.

According to Nedbank, rising inflation and concerns over tightening policy globally will probably keep interest rates in SA on hold in the short term until these trends become clearer.

The bank commented on Monday that growth in private sector credit extension rose to 6% year-on-year (y/y) in March, slightly higher than the markets’ forecast of 5.7% and up on February’s 5.7%.

Other loans and advances - made up mostly of loans to corporates - again drove the headline figure, the bank said.

Money supply growth eased to 6.4% y/y from 6.9% and was lower than the consensus forecast of 7%.

According to Nedbank, credit demand is likely to improve gradually in 2018 on better economic growth and confidence, with modestly lower interest rates and softer inflation helping affordability.

"Credit demand remains modest despite the recent spike in both business and consumer confidence following the positive political changes in December," said Nedbank.

"Even though credit growth will improve as the economy picks up in the coming months, helped by a favourable global economic climate and better local conditions, this will not be by enough to concern the monetary authorities."

The Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) cut interest rates by 25 basis points at the end on March this year. The repo rate is now 6.5% and the prime lending rate 10%.

The last time before that that SARB cut the repo rate was in July 2017, when the MPC reduced the rate by 25 basis points from 7% to 6.75%.

SARB governor Lesetja Kganyago said at the time that the inflation forecast of SARB has shown a moderate improvement and indications are that a low point of the inflation cycle had been reached.

The main changes in the forecast relate to the exchange rate, among other things, he said and cautioned that an international trade war could also push inflation expectations higher.

He listed as a key risk to the rand the possible fiscal tightening in the US.