Interest Rate View for 2024

There have already been two significant interest rate announcements made during the past week or so, specifically being the US Federal Reserve Bank (Fed) as well as the South Arican Rerserve Bank (SARB). Both central banks have opted to leave their repo rates unchanged – very much in line with market expectations. Perhaps more noteworthy than the decision itself were the statements by their respective governors that accompanied the announcements.

Mr. Jerome Powell, chairman of the Fed, said it was unlikely that they would bring interest rates down at their next meeting in March. Reason being, they want to see more definite signs of their inflation declining before dropping any rates. The initial expectation in America was for their series of interest rates cuts to commence in the 2nd quarter of this year and to stop mid 2025. However their December inflation then came out slightly higher than what was expected and also higher than the previous month. This higher inflation is largely why Mr. Powell and his troops are now wary of easing rates too early.

The general expectation remains that US interest rates have reached an apex in this interest rate cycle and that rates will be cut going forward – it's only when the first cut will happen that is uncertain. If it is not in March, the first reduction should in all probability be at their subsequent meeting in June. There are three rate cuts of 0.25% each expected for this year followed by another two for next year. All in an effort to bring their inflation back under control at the desired 2% they were used to.

As mentioned earlier, the SARB also decided to leave their repo rate at 8.25% – also in line with the market's expectations. Interestingly, this time round the decision was unanimous and although inflation has been declining at a fair pace over the past few months, the current figure of 5.1% is still considerably higher than the midpoint of their inflation target framework of between 3% and 6%. Only when their inflation gets close to (or preferably below) the midpoint of 4.5% is there a realistic chance for interest rates to be reduced in South Africa. Also, the factors that may fuel higher inflation in the future, mainly being energy and food prices, needs to be under control. Fuel inflation in particular is expected to be much lower for the year, but with all the geo-political uncertainty in the world this view could quickly reverse. The SARB will however be looking for reasons to cut interest rates to try and boost the current slow credit growth and also to try to boost the struggling SA economy. According the SARB itself, they expect the SA economy to growth by a mere 1.2% for the year. We can therefore expect that interest rates in SA may also start to decline around the middle of the year and that there will be between 3 and 4 rate cuts of 0.25% each.

In terms of the expectation of interest rates in Namibia, we can reasonably expect it to move more or less in line with that of America and especially SA. Inflation in Namibia is to a large extent driven by the same factors that set worldwide inflation and therefore we can expect Namibia's inflation to also decrease further as the year progresses, in line with the rest of the world. Here too we can expect interest rates to fall by about 1% this year provided the Bank of Namibia obviously reckons our unique circumstances justifies such reductions.

Local households and businesses have been under severe pressure for more than 2 years and relief in the form of interest rate cuts will be well received. This view, of course, remains data-dependent.