South African fund managers are unanimously agreeing that the next move for interest rates in the country will be down, but warn that the full impact of the current elevated rates has not yet been felt. This means that consumer spending is likely to remain under strain for the first half of 2024, with retailers and other economic sectors likely to suffer. Key metrics predict a stronger rand, lower interest rates, and lower inflation in 2024. However, across industries, performances will vary.
Investors anticipate strong performances in the banking, software, and industrial sectors, but expect flat performances around real estate, telecoms, and gold. The inflation rate is still considered "just right" for the prevailing economic conditions, but investors are slowly shifting towards perceiving it as "too restrictive." As a result, more fund managers are adjusting their expectations for the next move by the South African Reserve Bank to cut rates. Most economists and analysts only expect a cut to happen in mid-2024, and investors see a cut only happening in Q2 2024.
While interest rates are unlikely to shift higher, the current rate remains restrictive and is keeping pressure on those with debts to pay. Reserve Bank Deputy Governor Fundi Tshazibana warns that risks remain, particularly the government's borrowing patterns and South Africa's risk premium. In November 2023, the central bank maintained its main lending rate at 8.25% after ten consecutive hikes starting in November 2021.
