Cape Town – The collapse of the American commercial banking company Silicon Valley Bank could see South Africa, Nigeria, and a few other African countries raise borrowing costs in the coming weeks.
Momentum Investments economist Sanisha Packirisamy said policymakers nearing the end of the interest-rate hiking cycle could raise the benchmark by 25 basis points in order to address potential risks to the inflation outlook, News24 reported.
The report said that South Africa’s Monetary Policy Committee (MPC) could take direction from the European Central Bank (ECB) after it last week delivered a 50 basis-point hike.
The ECB “made a loud statement to markets to suggest that fighting inflation is their top priority but they stand ready to support the financial sector if needed through financial stability tools”, Packirisamy was quoted as saying.
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According to Momentum Investments, the outlook for SA’s growth is bleak, particularly for this year. Various institutions project lower growth in 2023 compared to 2022 and a slight improvement in 2024 and 2025.
The reasons quoted by these institutions for the subdued growth estimates included the weak global economic outlook with a higher recession risk in Europe and the US, continuous load shedding, logistics constraints, the impact of monetary policy tightening, lower consumer and investment spending, as well as softer export expectations.
Momentum said that further risks to the growth outlook would stem from high unemployment rates, high levels of corruption and the cost-of-living crisis.
IOL reported that investors evaluated the health of the global banking sector after the South African banks’ index fell 1.6% to 9 215 index points.
The report said that Nedbank led the losses at the JSE, falling 1.6% to R208.54 per share with FirstRand 1.6% down to R60.47 per share. Capitec lost 1% to R1 584 per share, Standard Bank was 0.8% down to R164.20 per share, and Absa eased 0.6% to R850 per share.
“But while South African banks are not directly vulnerable to the kinds of stress experienced elsewhere, local markets do not escape global sell-offs,” Old Mutual Wealth investment strategist Izak Odendaal was quoted as saying.
“The JSE fell in sympathy with global equities last week, and the flight to safety that boosted global bonds also benefited local bonds. If global markets regain composure, local shares are likely to follow suit.”
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Compiled by Junaid Benjamin
