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HOT TOPIC | Reserve Bank not to raise interest rates again

The pronounced decline in the rate of inflation is most welcome news for millions of indebted South Africans, as is the decision by the Monetary Policy Committee (MPC) of the Reserve Bank not to raise interest rates again.


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 five 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 recorded in September 2021. Earlier, shipping costs had escalated by more than 700% between September 2019 and September 2021, but the Statista index is now back at a reasonable level of just below $1,500 (for a 40-foot container).

  • Lower oil prices, with West Texas Intermediate having dropped by 40% since mid-2022

  • A weaker US dollar as a result of an imminent halting of the 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

  • The base effect in the way that the CPI is calculated, which means that any recent period of relatively lower monthly price increases than earlier in the relevant 12-month cycle will automatically lead to a lower year-on-year CPI. This effect has been quite strong as a result of the lowering of the above supply-side cost pressures and will continue to drive down the CPI during the rest of the year.

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, with South Africa’s Producer Price Index (PPI) already having declined from a peak of 18% in July 2022 to only 7.3% in May 2023. These factors are related to the supply-side of the macroeconomic equation and undue increases in the cost of capital and of credit only serve to exacerbate price pressures.


Hopefully, the rate hiking cycle of the Monetary Policy Committee will now come to an end and indebted households may even look forward to lower rates before year-end.

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