Economists expect the South African Reserve Bank (SARB) to keep holding rates at 8.25% when its Monetary Policy Committee meets next week – with he hope of interest rate cuts pushed back to the next meeting in September at the earliest.
However, there are risks that rates could only be cut in November or at the start of 2025.
The current views from economists on rate cuts are as follows:
| Group | July Meeting | First Cut |
|---|---|---|
| Nedbank | Hold | September 2024 |
| BER | Hold | September 2024 |
| Investec | Hold | November 2024 |
| Bank of America | Hold | January 2025 |
This outlook hasn’t changed much since the last review in May, mainly the easing of inflation has not been as rapid as many have liked, with the overall picture still pointing to CPI sustainably hitting the mid-point of the SARB’s target range by mid-2025.
According to economists at Nedbank, this puts South Africa on a slower disinflation trajectory, which should see inflation average around 5% in 2024.
However, sentiment has definitely improved.
“Our assessment suggests that the risks to the inflation outlook remain relatively balanced. Some of the concerns raised at May’s MPC meeting have either not materialised or receded somewhat,” the bank said.
Most notably, the latest Bureau for Economic Research (BER) survey on inflation expectations showed some moderation over the next three years by all participants, while the rand held up better than expected in the face of political uncertainty against a relatively rangebound US dollar.
“With the uncertainties around the elections, the shape of the new government and the chosen policy course largely cleared up, global forces will likely reassert their dominance over the rand’s course during the remainder of this year.”
This puts the SARB on track to keep the repo rate at 8.25% at next week’s meetings, waiting for direction on US monetary policy and for domestic inflation to gain some downward traction.
Nedbank said that conditions will be more supportive of monetary policy easing towards the end of Q3 2024.
“Consequently, we still expect the first 25-bps cut in September, followed by another of the same margin in November. The repo rate is forecast to end the year at 7.75%, taking the prime lending rate to 11.25%,” it said.
Real interest rates will increase further, stabilising above 2% as inflation dips below 5% later this year and throughout next year, it said.
The BER is also quite optimistic about a September rate cut.
The group noted that with moderating inflation, a rate cut could be possible by the SARB’s penultimate meeting for the year, driven by several European central banks already cutting rates and markets anticipating the US Fed to cut in September.
“Although the SARB does not explicitly follow the US Fed, the Reserve Bank does take the rand exchange rate and inflationary impacts of a potentially depreciating local currency into account,” the BER said.
Investec chief economist Annabel Bishop has previously noted that the rand would weaken should the SARB cut rates ahead of the US Fed, so it is more likely for the local central bank to follow its US counterpart.
Bishop, however, is also more cautious in calling a September rate cut, pointing to a more moderate November cut, or possibly in January 2025.
Investec has pencilled in a 25 basis point cut for November, in line with the expectation that the SARB will follow the US Fed rather than cutting at the same time.
Other economists are less optimistic of a 2024 cut at all.
Bank of America’s prediction for South Africa’s interest rates is that the first cut will only come in January 2025, with a cumulative 100bps in January, March, May, and July.
BofA said that it is improbable for the SARB to cut before the US Federal Reserve, which it only expects to happen in December 2024.
Read: Massive problem for interest rate cuts in South Africa
