Latest news with #Sarb
IOL News
a day ago
- Business
- IOL News
Sarb's potential shift to 3% inflation target could benefit South African economy
Analyses undertaken by the Sarb, the National Treasury, and other experts highlight significant potential benefits from reducing the inflation target to 3%. Image: File Economists have concurred that the South African Reserve Bank (Sarb) could help lower the borrowing costs, boost investor confidence, and economic growth by reducing its inflation targeting to 3% per annum. This comes as discussions have emerged regarding whether South Africa's current inflation target midpoint of 4.5% is consistent with price stability and whether adjusting it to a lower rate might help secure the current trend of low inflation Analyses undertaken by the Sarb, the National Treasury, and other experts highlight significant potential benefits from reducing the inflation target to 3%. Recent comments from the Sarb about potentially lowering the inflation target led market participants to recalibrate inflation expectations downward. According to the Bank of America (BofA) Global Research's latest South Africa Viewpoint on Monday, there is more to gain and less to lose by moving to 3% inflation target. 'We think moving to 3% is almost certain. The Sarb would not have intensified its desire if it did not have buy-in - at least in private if not publicly. Markets would not have reacted positively if the moves were in doubt,' said Tatonga Rusike, BofA's sub-Saharan Africa economist. 'An announcement could be made with the concurrence of the finance minister at either of the upcoming MPC meeting(s) - the Mid-term Budget presentation in October or the Budget 2026 presentation in February. Inflation is already benign and does not require the Sarb to change its current rate cycle. 'Other than influencing expectations through moral suasion, work still needs to be done in publishing the advantages of the 3% inflation target to the non-technical public, price setters and labour unions. South Africa moved from 3-6% to a 4.5% mid-point target in 2017. Reaching it was helped by central bank credibility and supportive supply-side factors - low oil and food prices. The Brent oil price averaged $63 per barrel between 2017 and 2019 while food inflation averaged 7% in 2017, 3.2% in 2018 and 3.1% in 2019. This made it easier to reach 4.5% and the central bank was cutting the policy rate through the cycle. Earlier this year, Sarb Governor Lesetja Kgayango said one particular issue that both advanced and emerging market economies grappled with was making sure that their targets were efficient and aligned with clear and practical definitions of 'price stability'. 'Most advanced economies have settled on maintaining inflation targets at 2%, while emerging markets are closer to the 3% mark,' Kganyago said. 'Early adopters of inflation targeting have updated their frameworks to better reflect changing realities on the ground, with Armenia being the latest central bank to also reduce its target to 3%.' In its latest annual report, the Sarb said the 'main concern with South African inflation is not our ability to hit the target. Rather, it is that our target is high compared to other countries.' The bank said although an inflation rate of 4.5% may seem moderate, it still causes prices to double every 16 years, and this is hard to reconcile with its constitutional obligation to safeguard the value of the currency. Investec chief economist, Annabel Bishop, said concurred with the advocacy for a lower inflation target, asserting that such a move would foster a more advantageous interest rate environment. 'A persistently lower rate of inflation would result in a lower interest rate environment which in turn would benefit the economy, the bond market and consumers. At 3% year-on-year inflation the neutral interest rate would be 5% not 6.5% with inflation at 4.5% year-on-year,' Bishop said. 'In addition, higher than expected tax collections would allow for a reduction in the fiscal deficit and so could reduce the borrowing requirement, again positive for the bond outcome, although the market has largely adopted a wait and see attitude.' BUSINESS REPORT
The Citizen
5 days ago
- Business
- The Citizen
Reserve Bank and Ibex reach final settlement of R6.3 billion on Steinhoff fraud
Steinhoff imploded in December 2017 when the auditors refused to sign off on the financial statements due to irregularities. The South African Reserve Bank (Sarb) has reached a final settlement with Ibex of R6.3 billion after an extensive and complex investigation into the affairs of Steinhoff International Holdings and people or entities regarding possible contraventions of exchange control regulations. Ibex was formerly known as Steinhoff International Holdings. After its investigation, Sarb took administrative action against certain entities within and associated with the Steinhoff Group, because they did not comply with the exchange control regulations. The discovery of the now well-known accounting irregularities in the Steinhoff Group in December 2017 led to a sharp and immediate decline in the Steinhoff share price on both the Frankfurt and Johannesburg stock exchanges, eroding approximately 90% of the company's market capitalisation. ALSO READ: What we know so far about the secret PwC report on Steinhoff According to the Sarb the Steinhoff Group's external debt exceeded 10 billion euros (approximately R155 billion) at the time. The crisis threatened the Steinhoff Group's continued existence and risked consequences, including forced asset sales or 'fire sales', significant losses to South African and foreign financial institutions and investors and extensive job losses. There was also a risk that it could significantly affect South Africa's reputation as one of the most robust and well-regulated financial markets in the world, Sarb points out. Steps to restructure Steinhoff debt Complex multi-jurisdictional debt restructuring and settlement processes were implemented between 2018 and 2023 to prevent an uncontrolled liquidation and mitigate the financial distress facing the Steinhoff Group. These processes resulted in the Steinhoff Group fully repaying more than R28 billion owed to South African banks in 2018, as well as compensation to other South African investors amounting to approximately R18.5 billion as part of the global settlement, that involved a total settlement value of approximately R29.6 billion at the time and was approved and sanctioned by international and local courts. ALSO READ: Almost R67 million from Steinhoff accused forfeited to the state The Sarb says the Public Investment Corporation (PIC) was one of the main beneficiaries of the global settlement due to its investment in the Steinhoff Group. South African creditors and banks were able to exit and recover all or most of their money, as foreign creditors agreed to a restructuring of their debt and a deferral of their rights. According to the Sarb, these foreign financial creditors granted forbearance of their claims against members of the Steinhoff Group, ultimately to 30 June 2026, to enable the settlement of various other creditors, who were mainly South African, first. Disputes between Ibex and Sarb Various disputes arose between the Ibex Group and the Sarb in early 2023 regarding the Sarb's administrative actions against Ibex Group due to various alleged contraventions of the exchange control regulations revealed by the investigation. The Sarb says these disputes resulted in multiple legal proceedings between the parties, including the intervention of at least one of the Ibex Group's financial creditors. One of these disputes involved the forfeiture of an amount of about R6.3 billion for the benefit of the state, while others concerned the Sarb's blocking and prohibition orders over the Ibex Group's funds and assets that arose as part of the investigation. In line with legal advice and after careful consideration by the Sarb, all the disputes between the Ibex Group and the Sarb were ultimately resolved in a comprehensive settlement. ALSO READ: NPA secures first conviction and sentence in Steinhoff fraud case The Sarb says In concluding the settlement agreement and fully and finally resolving the disputes between them, the Sarb and the Ibex Group considered the public interest, the Sarb's mandate to enforce the exchange control regulations and the importance of enhancing investor confidence in South Africa. They also wanted to promote regulatory certainty by allowing the Ibex Group to settle its contractual obligations to its foreign financial creditors. 'In fulfilling these aims, the Ibex Group forfeited R6.3 billion plus interest of its funds to the state in full and final settlement of the Sarb's enforcement action against the Ibex Group regarding the alleged contraventions,' the Sarb says. Ibex granted permission to wind down and repay creditors In return, the Ibex Group withdrew its legal challenge to the forfeiture. In addition, the Sarb granted the Ibex Group permission to implement and take all steps necessary for the Ibex Group to implement its Dutch court-approved structured winding down process and repay its creditors and operational expenses. By agreement between the Sarb and Ibex Group, the High Court set aside the prohibition orders restricting the Ibex Group's ability to deal with some of its shares in Pepkor Holdings Limited and the Sarb agreed not to take any further administrative or enforcement action against the Ibex Group regarding the alleged contraventions. In addition, the Ibex Group and the Sarb, with the support of the majority of the Ibex Group's current creditors, withdrew all the litigation they instituted, while the Ibex Group and the financial creditors abandoned the judgments obtained in the course of the litigation. 'The Sarb as well as the Ibex Group consider the settlement reasonable, proportionate and justifiable considering the complex and competing interests. 'Considering the long history of the Steinhoff/Ibex matter, the wider ramification of the continued dispute between the Sarb and the Ibex Group for investor appetite for future investments in South Africa and the interests in finality, the Sarb and the Ibex Group consider this final settlement to be in the best interests of South Africa,' the Sarb says.
IOL News
5 days ago
- Business
- IOL News
Steinhoff forfeits R6. 3bn to settle long-standing battle with SA Reserve Bank
Steinhoff International used to own a vast portfolio of retail brands and companies, mostly in the furniture and household goods sectors, as well as manufacturing facilities and operations in Europe, Africa, Asia, the US, Australia, and New Zealand. Image: Henk Kruger/Independent Newspapers The South African Reserve Bank's (Sarb's) seven-year probe into now defunct Steinhoff's alleged breach of Exchange Control Regulations has finally been concluded with an agreement that what is now Ibex Group will no longer try recoup a previously forfeited R6.3 billion. In a statement released on Thursday, the central bank said that it and Ibex Group had resolved all the disputes between the two parties in a 'comprehensive settlement'. 'Both Sarb and the Ibex Group consider the settlement reasonable, proportionate and justifiable in light of the complex and competing interests,' the central bank's statement said. 'Sarb and the Ibex Group consider this final settlement to be in the best interests of South Africa,' it added. The Sarb said that the deal followed it having taken legal advice, considered the public interest, its mandate in terms of forex, investor confidence in South Africa, and promoting regulatory certainty by allowing the Ibex Group to settle its contractual obligations to its foreign financial creditors, it had agreed to settle the matter. The deal allows Ibex to settle Sarb's enforcement action by ceasing litigation over R6.3 billion – plus interest – of funds that had already been forfeited to the state. At the same time, SARB has granted permissions for Ibex to implement its Dutch court-approved winding down the remaining Steinhoff business units that it did not take over. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ Former parts of Steinhoff that are now held by Ibex Holdings includes stakes in Pepkor, in addition to Mattress Firm and Pepco. While Ibex, which is based in Netherlands, is not a public company, Pepkor, Mattress Firm, and Pepco are listed in various jurisdictions. Steinhoff collapsed in what is South Africa's largest corporate explosion after Deloitte's revelations that there were accounting anomalies, which resulted in Steinhoff losing 97% of its market capitalisation between August 2017 and March 2019 as investors fled. At the time Steinhoff went bust, it owed more than R155bn to creditors, said Sarb. 'This company crisis threatened the Steinhoff Group's continued existence and risked consequences, including forced asset sales or 'fire sales', significant losses to South African and foreign financial institutions and investors, and extensive job losses in South Africa and abroad,' said Sarb. The Sarb added that the crisis also risked significantly affecting South Africa's reputation as one of the most robust and well-regulated financial markets in the world. To prevent an uncontrolled liquidation and mitigate the financial distress facing the Steinhoff Group, debt restructuring and settlement processes were implemented across several jurisdictions between 2018 and 2023. 'These processes resulted in the Steinhoff Group fully repaying over R28bn owed to South African banks in 2018 as well as compensation to other South African investors amounting to approximately R18.5bn as part of the global settlement,' said Sarb. The global settlement, in total, was worth around R29.6 billion at the time and was approved and sanctioned by international and local courts. South Africa's largest fund manager, the Public Investment Corporation, was one of the main global settlement beneficiaries. A PwC investigation found that, in total, €6.5bn – or R134bn – illegitimately went through Steinhoff's books between 2009 and 2017 until the news of South Africa's biggest corporate scandal emerged. Steinhoff International used to own a vast portfolio of retail brands and companies, mostly in the furniture and household goods sectors, as well as manufacturing facilities and operations in Europe, Africa, Asia, the US, Australia, and New Zealand. The former company is still named in an alleged price-fixing matter involving PG Bison – then indirectly owned by Steinhoff – and a firm with which it should have been in competition, Sonae, which proceeded to the Competition Tribunal in April. BUSINESS REPORT
IOL News
6 days ago
- Business
- IOL News
All Eyes on SA Reserve Bank: What to expect from July's MPC meeting
If the MPC bases its decision purely on data, the country could enjoy a rate cut, however, many other factors are at play which could see interest rates remaining unchanged at the end of the month, offering no financial relief for consumers battling the cost of living crisis in the country. Image: Thobile Mathonsi / Independent Newspapers As South Africa's economic landscape shifts with increasing complexity, all eyes are on the South African Reserve Bank's (Sarb) Monetary Policy Committee (MPC) as it prepares for its pivotal interest rate decision at the end of July. If the MPC bases its decision purely on data, the country could enjoy a rate cut, however, many other factors are at play which could see interest rates remaining unchanged at the end of the month, offering no financial relief for consumers battling the cost of living crisis in the country. The current repo rate sits at 7.25%, following a slight reduction of 25 basis points earlier in May. Despite the central bank's move, Governor Lesetja Kganyago has continued to adopt a hawkish stance, underscoring the significance of maintaining price stability and addressing inflation risks. Recent data paints a somewhat brighter picture, with inflation now stabilising within Sarb's targeted range of 3%–6%. Notably, the headline Consumer Price Index (CPI) dropped from 5.6% in April to 5.2% in May, indicative of subdued demand-side pressures on the economy. Frank Blackmore Lead economist at KPMG told Business Report that there are several factors the MPC will need to consider ahead of the meeting, the most important being the current state of inflation in the country. "Inflation has remained below the lower band at 2.8%. Therefore, in a purely data-driven process, one might expect there to be room for a 25 basis-point reduction at the end of the month. However, the decision is not that straightforward. Inflation expectations are currently closer to the 4% mark," Blackmore said. "The Reserve Bank has also raised the possibility of lowering the inflation target, from the current midpoint of 4.5% within the 3–6% target band, down to 3%. If this is the case, and the aim is to bring inflation expectations down to that level, interest rates may need to remain slightly higher for longer. This could mean that rates remain unchanged until the end of the year to ensure inflation expectations are aligned with the revised addition, developments among our trading partners, particularly with countries like the United States, must be considered," Blackmore added. Neil Roets, CEO of Debt Rescue said that the country stands at a critical economic juncture. "The imminent threat of a 30% tariff on exports to the United States, currently set to take effect on 1 August, could have far-reaching consequences, including sharp decline in export demand, coupled with a weakening rand, which may increase the cost of imports, placing fresh upward pressure on prices, particularly on essentials like food and fuel," Roets said. Blackmore added, "Following the imposition of tariffs under President Trump, there is a market assumption that US inflation figures for June will show an uptick due to those tariffs. This would reduce the likelihood of any rate cuts in the US and, in turn, make a local rate reduction less likely as well. There are three key areas influencing the decision: 1. Current inflation and inflation expectations, which could support a rate cut; 2. The potential revision of the inflation target to 3%, which may justify holding rates steady; 3. External factors, such as the inflationary impact of US tariffs, which could also reduce the likelihood of a rate cut." Roets said that this comes at a time when most South Africans are already financially stretched. "At Debt Rescue, we continue to see how families are cutting back on even the most basic necessities. Food inflation stood at 4.8% in May, contributing significantly to overall inflation and further eroding household budgets. For many consumers, the financial margin has disappeared, leaving no space for savings, and mostly not enough to cover essentials," Roets said. "Sarb must now navigate a very delicate path. While inflation is currently within target and the repo rate sits above the neutral level, suggesting that there could be room for further easing, the global economic outlook is volatile. The U.S. tariff threats, shifting interest rate expectations abroad, and domestic price pressures all complicate the decision-making process. The upcoming Consumer Price Index (CPI) data, due on 23 July, will be one of many indicators informing the final call," the Debt Rescue CEO further added. Roets said, "A further rate cut would offer desperately needed relief to consumers, particularly the over-indebted, who are struggling to meet their monthly obligations. However, the Sarb's mandate is currency stability, and if risks to inflation mount, the Bank may be compelled to hold steady. While a cut would be welcome, especially by struggling households, the decision remains highly uncertain. With so many competing domestic and international pressures at play, predicting the outcome has become extremely difficult. The SARB will need to weigh a wide range of micro and macroeconomic factors before making its final decision." For businesses and consumers already navigating tight margins in this sluggish economy, a rate cut would provide much-needed relief. Reduced borrowing costs could stimulate demand for credit, boost consumer spending, and encourage greater business confidence, though the measurable impact would likely take time to manifest across the economy. Despite these pressures, experts maintain that the Sarb will remain vigilant, focusing on data rather than light-hearted reactions to short-term dynamics. Annabel Bishop, Chief Economist at Investec, summarised the sentiment concisely: 'We expect the Bank to remain cautious and data-dependent.' Yet, she noted, if inflation continues its downward trajectory, a cut could feasibly come as early as September. The forthcoming MPC decision is set to capture the attention of investors, businesses, and policymakers, with prevailing forecasts hinting at holding the rate steady at 7.25%. As stakeholders keenly await the meeting's outcomes, all eyes will be on the Sarb for any indications of the timing and nature of potential monetary easing. BUSINESS REPORT
IOL News
6 days ago
- Business
- IOL News
Sarb poised for rates cut despite inflation tickin up to 4-month high
Stats SA chief director of price statistics, Patrick Kelly, said the annual rate for food and non-alcoholic beverages has notably surged to a 15-month high of 5.1%, with meat prices—especially beef—being the primary culprit behind this uptick. Image: Simphiwe Mbokazi/Independent Newspapers The South African Reserve Bank (Sarb) may once again loosen its monetary policy before the year draws to a close despite recent data revealing an uptick in consumer price inflation. This comes as the Sarb's Monetary Policy Committee (MPC) will announce its decision on the policy rate next week after cutting the repo rate by 25 basis points to 7.25% per annum in May. Data from Statistics South Africa (Stats SA) on Wednesday showed that the headline consumer price index (CPI) edged higher to 3.0% in June after holding steady at 2.8% in April and May. This was the 11th consecutive month in which inflation remained below the 4.5% midpoint of the Sarb's 3-6% target range. Stats SA chief director of price statistics, Patrick Kelly, said the annual rate for food and non-alcoholic beverages has notably surged to a 15-month high of 5.1%, with meat prices—especially beef—being the primary culprit behind this uptick. The price of beef significantly rose on the back of the food and mouth disease outbreak in meat producing provinces, reducing the supply of red meat more than the demand in the market. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ Ad loading "Meat – particularly beef – continues to be the main driver of food inflation," Kelly said. "Beef prices spiked for a third successive month, with high annual and monthly increases recorded for stewing beef, mince and steak. Stewing beef rose by an annual 21.2%, the fastest pace on record since the current CPI series began in January 2017." Analysts are closely watching the Sarb's next moves as they navigate the complexities of a fluctuating economic landscape. Dr Elna Moolman, Standard Bank Group head of South Africa Macroeconomic Research, said consumer inflation re-entered the Sarb's target range again in June after falling below the 3-6% target range for three consecutive months. 'Such low inflation provides considerable support for consumers, given that most wage increases are higher than this low prevailing rate of inflation. It also arguably supports the case for the Reserve Bank to cut interest rates further at the upcoming MPC meeting next week,'Moolman said. 'We do expect inflation to continue trending higher in the coming months, but it should remain reasonably benign.' On a monthly basis, the CPI increased 0.3% following a 0.2% rise in May. Meanwhile, the annual core inflation rate edged down to 2.9% in June, the lowest since April 2021, from 3% in each of the previous two months. David Omojomolo, Africa economist at Capital Economics, noted that the slowdown in core inflation has set a favourable backdrop for potential interest rate cuts, reinforcing the Sarb's stance against excessive underlying price pressures. Omojomolo projects considerable relief for consumers, forecasting further cuts by year-end 'We expect rates to be lowered by more than most currently anticipate by the end of next year. The outturn was a touch stronger than our forecast that inflation would stay unchanged at 2.9% year-on-year, but in line with the LSEG consensus,' Omojomolo said. 'We expect a 25 basis points cut to 7.00% at the MPC meeting next week. And we think the Sarb will cut interest rates by another 125 basis points to 5.75% by end-26, further than most expect – even if the inflation target is lowered.' In a recent statement, Sarb Governor Lesetja Kganyago hinted at a potential shift in the bank's inflation target, considering a lower objective of 3% in light of internal and external analyses indicating that its current target may be unusually high. Nedbank economist Busisiwe Nkonki fforesees ongoing upward pressure on inflation during the second half of the year, primarily driven by food and fuel costs. The ongoing foot-and-mouth disease outbreak is expected to result in soaring meat prices, compounded by unpredictable geopolitical developments impacting the global price of Brent crude oil. 'We believe that the benign inflation outlook and muted domestic demand, amongst other factors, will convince the MPC to cut interest rates by 25 basis points next week,'she said. 'However, the MPC's decision will also be influenced by the US Fed's decision in the same week. Therefore, there is a chance that the MPC could delay the cut to September.' BUSINESS REPORT
