(3 Minutes Read)
The shift in rates in some of the key markets, combined with the positive political sentiment linked to the Government of National Unity (GNU), is having a positive impact on foreign investor sentiment.
The South African Reserve Bank’s decision to reduce interest rates by a modest quarter of a percentage point last week marks the turning of the interest rate cycle. It will be a positive indicator to businesses and consumers that the tight monetary environment of the last 15 months is starting to ease, hopefully supporting investment.
But it is a small step, unlike the leap made by the US Federal Reserve last week in cutting rates there by a full half a percentage point. The risk is inflation, and the Reserve Bank is again proving its conservative approach. Inflation is bad for businesses and consumers, making it hard to plan for the future and eroding the value of money.
Inflation is driven by supply and demand dynamics, and expectations about the future. A central bank that is well respected for its tough stance on inflation will have a better grip on expectations than one that is too quick to reduce rates.
The shift in rates in some of the key markets, combined with the positive political sentiment linked to the Government of National Unity (GNU), is having a positive impact on foreign investor sentiment.
Read Also:
https://trendsnafrica.com/south-african-rand-at-rock-bottom-may-bounce-back/
The rand last week hit its strongest levels in 18 months against the US dollar while long bond yields are still falling, making it cheaper for the government to borrow. That shows foreign investors are now being attracted by our relatively higher interest rates and improving risk outlook. That is good for the business environment too.
