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Rate Rise In South Africa

James Boston
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Rate Rise In South Africa

The South African Reserve Bank (SARB) has announced that it will raise it’s key interest rate this month by 25bps to 5.75%. The last time that the Bank raised this rate was a hike of 50 basis points in January.

The International Monetary Fund (IMF) in a statement on the country last week warned that it could further downgraded it’s economic outlook for the South African economy. Any signs of recovery in Africa’s largest economy have been short lived as a series of crippling strikes in the key mining and engineering sectors have resulted in both a slowdown in economic output as well as a drop in inward investment. First quarter GDP growth this year has as a result come in at a contractionary -0.6% compared to a more healthy 3.9% in the final quarter of last year. Positive growth is still anticipated for the economy this year but has undergone a series of downward revisions as any resolution to the industrial unrest appears to be some way off.

The IMF has already downgraded the South African economy twice in the past nine months, firstly from 2.9% to 2.8% anticipated growth and more recently to a level of 2.3%. Standard & Poors has also lowered the economy’s credit rating one notch to BBB- or Investment Grade, this leaves the country’s sovereign bonds at just one grade above Junk status.

South Africa’s latest strike has seen nearly a quarter of a million engineering and metal workers leave their posts, this action has shut down around one third of the county’s manufacturing sector. This latest action obviously has consequences for the domestic economic situation but additionally it is ensuring that South African exporters miss out on a much needed pick up in global demand, should this situation persist then it will hold long term consequences as global buyers source more stable arrangements elsewhere.

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