Reader Q & A: Interest rate predictions for next two years
Hi Francois
What are your interest rate expectations for the next few years?
I’m especially interested in rate estimates till September 2011.
Regards,
Zafreen
Hi Zafreen
I wish I could say with certainty what will happen with the economy, inflation and interest rates over the next two years, but unfortunately the best I can do is make an educated guess.
I expect the economy to slowly start recovering from the recession we’re currently in, during 2010, and more rapidly during 2011.
With the recovery and accompanying economic growth, I expect inflation to pick up again, probably during the second half of 2010.
To combat inflation, the SARB will need to hike interest rates.
I therefore expect the repo rate and prime rate to remain at round about the levels they are now, for the next year or so, and then to start rising again during the second half of 2010 and more rapidly throughout 2011.
Please remember that I’m not a fortune teller.
Kind regards,
Francois
December 31st, 2009 at 09:57 pm
I have to agree with you. Judging from the financial news I have read over the past 3 months, and watching the world’s experience with the global recession & rescue, we are still a few years away from the changing of the tides.
I would not be surprised if it stayed flat for all of 2010 but in a way , that’s not a bad thing. Just discovered your site today and looking forward to returning.
April 14th, 2010 at 06:52 pm
So far the interest rate in SA, which is decided by the monetary policy committee, seems to hike when “Inflation is high” OR “When inflation is acceptable AND there is deflationary pressure”
The real question is what will inflation look like for the next period. If you look at the SARB data on their site, and monitor M3 (total rands in the country) you will notice that there has been almost no increase over the past year. Considering SA’s economy is not collapsing this can only mean that inflation will remain low and stable or go slightly negative.
As long as they are not satisfied with the economic outlook, specifically with regards to the amount of loans banks can make, they will continue to lower the interest rate. I would venture to say that they will keep cutting it until M3 begins to expand again.
Historically M3 has expanded by up to 20% on average per year for the last 2 decades. Currently it has expanded almost 0% for the last year. To reestablish the lending culture I believe they will drop rates VERY low.
-Schalk
April 14th, 2010 at 06:32 pm
BIG PS here
This policy will most likely eventually lead to a period of sudden credit extension by commercial banks. M3 will make up for lost time in a very short period. This will lead to somewhat wild inflation (10% – 20%+) which will lead to a very sudden and harsh tightening on the credit supply through an increase in interest rates. So if you bought anything not linked to inflation you will probably have a bad cashflow situation here.
A more pressing question though is what will happen to SA when the US, UK and EU all enter hyperinflation / sovereign debt default?