The Standard Bank group has revised its interest rate forecasts for 2022, with the bank now expecting more hikes as inflation continues to bite.
“Since reporting in March 2022, the global macro-economic outlook has deteriorated. Growth has slowed, inflation has risen, and uncertainty has increased. Key drivers include the ongoing conflict in Ukraine, the strict lockdowns in China, and persistent global supply chain disruptions,” the bank said in a trading statement on Tuesday (14 June)
“In sub-Saharan Africa, higher food, fertilizer, and fuel prices have started to filter through, driving inflation upwards. Higher inflation has prompted monetary tightening.”
In South Africa, inflation reached 5.9% in April 2022. By 31 May 2022, the Reserve Bank’s Monetary Policy Committee had raised the repo rate by 100 basis points to 4.75% and indicated that there were likely to be further increases in the second half of the year.
“In March 2022, Standard Bank Research expected interest rates in South Africa to increase by 100 basis points for the full year. This has been revised up to 175 basis points,” it said.
Despite the change in the forecast, Standard Bank said its group guidance for the twelve months to 31 December 2022 remains largely unchanged.
“A higher average balance sheet and positive endowment from higher interest rates should drive strong net interest income growth. A larger client base and higher client activity is expected to continue to support fee growth. Trading revenues are subject to market volatility and related client activity.
“While the economic outlook has deteriorated and uncertainty increased, opportunities exist to help our clients and in turn, grow our business. We remain convinced that the strategy we laid out in August 2021 remains valid and that the 2025 targets we set are achievable.”
In the five months to 31 May 2022, the group recorded low double-digit revenue growth. A larger average balance sheet and higher interest rates drove low-teen net interest income growth.
A growing client franchise and higher client activity, due to fewer Covid-related restrictions, drove higher transactional turnover and supported mid-single-digit growth in banking fees.
Higher insurance premiums and lower pandemic-related claims were partially offset by higher short-term insurance claims. The latter was driven by inclement weather and floods in KwaZulu Natal, South Africa. Trading revenue grew mid-teens supported by continued client activity; this is off a high base in the five months to 31 May 2021 (5M21 or the prior period) and ahead of expectations.-bustech
