21 September 2023

Business Unity South Africa (BUSA): Whilst interest rate may hold, food and fuel prices will increase

The South African Reserve Bank (SARB) is expected to announce its rate decision on Thursday, 21 September 2023 following a three-day meeting on the interest rates decision. The current interest rate is currently sitting at 8.25% and economists have predicted a pause on the interest rate decision following the SARB’s last meeting in July. Should favourable economic circumstances, such as reduced inflation, continue it is possible that the country may witness a series of interest rate reductions in 2024.

Business Unity South Africa (BUSA) is of the view that the SARB will not hike rates in this cycle due to the market sentiment. In addition, BUSA has also observed that consumers and household spending has been under pressure due to high fuel costs and food price increases and the pause will lead to a much-needed reprieve for businesses. On a monthly basis, there was an uptick on 0.9% in, marking the most significant increase in four months as noted by economist.

It is also worth noting that the last fuel increase increased by R1.75 and diesel by R2.84 and the consumer price inflation (CPI) is reported at 4.7% according to the latest report by Stats SA. Petrol prices account for 3.5% of the CPI basket, while diesel prices only account for 1.4%. These factors are a concern for Business and there is anxiety that inflation increasing may push the Reserve Bank’s band above the 3% to 6 %. As expected, increases in fuel are in the main driven by higher international oil prices, which have risen due to slow demand and decreased output.

In previous months Business has been gripping with the amplification cost of debt which directly impact the bottom line of business. As interest rates climbed, businesses needed to allocate a larger portion of their funds towards debt servicing, leaving them with fewer resources to invest in expansion, research, and development. Therefore, a pause or cut on interest would be relieve for business.

Government intervention, strategic financial planning, and a focus on innovation and efficiency will become crucial in helping businesses navigate this complex and uncertain period. Whilst the previous hikes have presented evident fiscal challenges for Businesses, it also offered an opportunity for businesses to reassess strategies, streamline operations, and adapt to a more resilient and sustainable economic model. A pause will be welcomed, as it will allow for some reserves in the business operations as well as potentially allow for some spending which will feed into economic growth in the third quarter.

By

Thulebona Mhlanga
Manager: Economic Policy Special Project