CBE WARY OF INCREASE IN ADMINISTERED PRICES

MBABANE - In taking the decision to reduce interest rates, the CBE cautiously considered the likely increase in domestic administered prices and geopolitical tensions, which can cause supply chain disruptions.
The Central Bank of Eswatini (CBE) on Friday announced its decision to reduce the discount rate from 7.25 per cent to 7.0 per cent with effect from November 23, 2024. Administered prices are prices for goods and services that are set by a government or other authority, rather than by market forces. It is worth noting that electricity and water tariffs form part of administered prices in Eswatini. Therefore, the recently approved water tariff hike and the proposed electricity tariff hike are set to cause the supply chain disruption as considered by the bank.

Credibility

When making the announcement, the CBE Governor Dr Phil Mnisi, said the bank will continue to ensure that the credibility of the peg is safeguarded. Dr Mnisi said they will continue to monitor international, regional and domestic developments that influence the movements of inflation and will act appropriately in line with its mission to foster price and financial stability that is conducive to the economic development of Eswatini.The governors said in respect to the decision, banks are expected to reduce the prime lending rate on loans extended to individuals and businesses to 10.50 per cent until the next monetary policy meeting. Rate reduction offers much-needed relief to emaSwati struggling with their monthly repayments. Homeowners with bonds linked to the prime lending rate will see slightly reduced repayments.

The rate cut also creates fresh opportunities for prospective buyers. Lower borrowing costs make homeownership more accessible, and for first-time buyers, it might be the perfect incentive to enter the market. Additionally, motivated sellers eager to close deals before the year ends could present great opportunities for those looking to purchase property. The lower interest rate could also stimulate activity in the property market, with more buyers likely to enter the market in early 2025. Sellers could benefit from increased demand if their properties are well-priced and ready for sale. Domestically, economic activity is forecasted to grow by 3.6 per cent in 2024, from 5.0 per cent in 2023 before growing by a sizeable 8.3 per cent in 2025. He said the expected moderation in 2024, is on account of high base effects in the services sector in 2023 (which was an election year), coupled with a slow start in the implementation of mega projects. The expected high acceleration in economic growth in 2025 is largely accounted for by construction activity earmarked for the medium-term. Downside risks to the growth outlook include slow or postponed public projects implementation, unfavourable weather conditions and geopolitical tensions, among others.

Inflation

The governor highlighted that on the regional front, the South African economy grew by 0.4 per cent in the second quarter of 2024, following a revised flat reading in the first quarter, as the country experienced no load shedding throughout the entire quarter. The South African Reserve Bank (SARB) kept its growth forecast for 2024 steady at 1.1 per cent while the forecast for 2025 was revised up by 0.1 percentage points to 1.1 per cent and the forecast for 2026 was left unchanged at 1.8 per cent. South Africa’s annual inflation rate fell to 2.8 per cent in October 2024 from 3.8 per cent the previous month. The SARB revised down its inflation forecast to 4.5 per cent (from 4.6 per cent forecasted in September) for 2024 while the forecast for 2025 was kept steady at 4.0 per cent. The forecast for 2026 was revised up to 4.6 per cent (from 4.4 per cent). The SARB reduced the repo rate by 25 basis points to 7.75 per cent in its November 21, 2024 meeting.

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