In a collective consensus among South African fund managers, the consensus leans towards an anticipated decline in the country’s interest rates. However, they caution that the impact of the current high rates has yet to fully unfold, implying a continued strain on consumer spending for the initial half of 2024. This insight stems from the recent Bank of America’s Fund Manager Survey, which sheds light on South Africa’s outlook for the upcoming year.
Economic Outlook and Sectoral Variations
The survey indicates an optimistic outlook for South Africa’s overall performance in 2024, projecting a stronger rand, lower interest rates, and reduced inflation. However, expectations vary across industries, with positive prospects foreseen for banking, software, and industrial sectors, juxtaposed against potential stagnation in real estate, telecoms, and gold sectors.
Shifts in Interest Rate Perception and Expectations
While the prevailing inflation rate aligns with economic conditions, fund managers’ perspectives are gradually tilting toward perceiving it as excessively restrictive. Consequently, more managers are adjusting their outlook, leaning towards the anticipation of rate cuts by the South African Reserve Bank.
However, the consensus doesn’t foresee an immediate rate cut. Most economists and analysts predict a rate cut around mid-2024, echoing investors’ expectations of a similar timeframe in Q2 2024.
Conclusion of Hike Cycle and Future Rate Predictions
The unanimous agreement among investors signals the cessation of the hike cycle, with a striking 93% envisioning a cut as the next move. Even among the remaining, a hold at the current rate remains the expected alternative. Notably, there is a stark contrast from prior surveys, as none of the surveyed investors anticipate a rate hike.
Impact on Consumer Debt and Reserve Bank’s Caution
While the outlook of stable or lower interest rates is welcoming for households, the current rate remains constraining, particularly for individuals with outstanding debts. Reserve Bank Deputy Governor Fundi Tshazibana highlights persisting risks, such as government borrowing patterns and South Africa’s risk premium, which could protract the maintenance of these restrictive rates.
In November 2023, the central bank maintained the main lending rate at 8.25% after a sequence of ten consecutive hikes beginning in November 2021. Governor Lesetja Kganyango emphasized potential risks to the rate, citing infrastructure and electricity supply issues at the central bank’s recent meeting in November.
Summary
South African fund managers foresee a potential shift in interest rates, leaning towards a decline in the near future. However, the full impact of current elevated rates continues to influence consumer spending, potentially straining certain economic sectors. While the overall outlook for 2024 appears positive, divergences are expected across industries. The unanimous anticipation of a rate cut signals an end to the previous hike cycle, offering some relief to households, yet the current rate’s restrictiveness persists, prompting cautionary notes from the Reserve Bank regarding potential risks.
