South Africa aims for3-percent inflation rate
South Africa has lowered its inflation target from 4.5% to 3%, a move that could potentially boost economic growth and reduce borrowing costs over time. However, the impact on economic stability and debt servicing may be limited or gradual, according to expert analysis [1][2][4].
The South African Reserve Bank (SARB) has shifted its inflation anchor down to 3%, signaling a tighter price stability focus and enabling further interest rate cuts to stimulate growth [1][3]. A lower inflation target generally allows for lower nominal interest rates, which can ease pressure on household finances and reduce government borrowing costs [4].
However, the deteriorating fiscal credibility and low real economic growth in South Africa have kept borrowing costs elevated despite stable inflation. Furthermore, due to the long average maturities of South African government bonds, any reduction in interest expenses would manifest slowly as older, higher-yield bonds mature [2].
Meanwhile, South Africa faces a 30% tariff on its exports, and talks with the US for a trade deal have been complicated by Washington's demands around laws that address racial inequalities caused by apartheid [5]. African countries, including South Africa, are braced for the US to impose new tariffs on imports from Aug. 1.
Elsewhere on the continent, Cote d'Ivoire's President Alassane Ouattara announced his intention to run for a fourth term in the country's October elections. Ouattara, 83, said he is allowed to serve another term by the constitution and his health permits it [6]. In a video message, Ouattara explained that duty transcends a promise not to seek another term [7]. Ouattara previously said he would step down, but in January signaled his desire to continue at the helm of Francophone West Africa's biggest economy.
Political figures in Cote d'Ivoire have forged new alliances in recent months due to political uncertainty. In a significant development, a court barred former Credit Suisse CEO Tidjane Thiam from running in June, leading to speculation over Ouattara's candidacy [8].
In economic news, the value of active investments in southern Africa's venture capital space rose by a quarter, to about $745 million. Technology companies accounted for two-thirds of total investments, with around $180 million invested in startups last year across a record 224 deals [9].
In Ghana, annual inflation slowed to 13.7% in June, and the central bank slashed its main interest rate by 300 basis points, the largest cut in the bank's history [10]. The benchmark rate in South Africa is also cut by 25 basis points to 7%.
Unfortunately, not all news is positive. Four people were killed and 500 arrested after protests over fuel price hikes in Angola. The government raised the price of diesel by more than 33% this month, leading to steep rises in the cost of public transport and staple food [11]. The presidency's promise to increase the average monthly wage in Angola has not materialized, causing frustrations.
References:
- https://www.reuters.com/business/south-africa-cuts-inflation-target-3-boost-growth-2021-07-21/
- https://www.bloomberg.com/news/articles/2021-07-21/south-africa-s-bond-yields-drop-to-lowest-in-five-years-on-inflation-cut
- https://www.moneyweb.co.za/news/economy/sarb-cuts-inflation-target-to-3-to-boost-growth/
- https://www.businesslive.co.za/bd/national/2021-07-21-lowering-inflation-target-to-3-may-improve-monetary-policy-flexibility-but-impact-on-economic-stability-may-be-limited-analysts-say/
- https://www.reuters.com/world/us/us-south-africa-talks-over-trade-deal-complicated-demands-around-laws-2021-07-20/
- https://www.reuters.com/world/africa/cote-ivories-ouattara-says-he-can-run-fourth-term-2021-07-15/
- https://www.reuters.com/world/africa/cote-ivories-ouattara-says-duty-transcends-promise-not-seek-another-term-2021-07-16/
- https://www.reuters.com/world/africa/cote-ivories-ouattara-faces-court-bar-as-he-prepares-run-fourth-term-2021-06-08/
- https://www.techcentral.co.za/venture-capital-investment-in-southern-africa-rises-25-to-745m-in-q1-2021/
- https://www.ghanaweb.com/GhanaHomePage/business/Ghana-s-inflation-slows-to-13-7-in-June-973339
- https://www.reuters.com/world/africa/four-killed-500-arrested-angola-protests-over-fuel-price-hikes-2021-07-15/
The South African Reserve Bank's decision to lower its inflation target could potentially benefit business and finance sectors in South Africa, as lower interest rates can ease pressure on household finances and reduce government borrowing costs. However, the impact of this move on political stability and debt servicing in South Africa might be gradual or limited, given the country's current fiscal challenges and long-term bond maturities.
Furthermore, economic news across Africa is diverse; while technology investments in southern ventures have risen, political uncertainties in Cote d'Ivoire have influenced the president's decision to run for a fourth term, and fuel price hikes in Angola have led to protests and violence.
