While the South African Reserve Bank’s latest decision to raise interest rates by 50 basis points will undoubtedly put pressure on debt holders, there are definite positives to the move, says Thalia Petousis, portfolio manager at Allan Gray.
“As the impact of load shedding bleeds into an elevated cost of production and wreaks havoc on food retailers’ business operations, food inflation is also garnering more attention. The SARB has remarked on several occasions that SA food price inflation is rising much faster than their models suggested, most recently at 14% year-on-year in February.”
This, in turn, requires the SARB to be sensitised to the factors that drive foreign capital flows into the country – perhaps the most important of which is the attractiveness of SA interest rates as an investment destination. South Africa’s problems arise from structural constraints to growth and are not issues that the blunt instrument of monetary policy can address, the investor noted.