Reserve Bank interest rate cuts coming – economists

Lesetja Kganyago

The South African Reserve Bank (SARB) will likely begin cutting interest rates in early 2024, reducing the repo rate by 25 basis points per quarter as inflation slows. 

This is according to a Reuters poll of 20 economists, who predicted that interest rates would remain unchanged for the rest of 2023. 

The Reserve Bank is expected to join other emerging market central banks that have begun cutting interest rates or are predicted to loosen their monetary policy soon. 

Many central banks in developing economies tightened monetary policy to slow inflation long before their counterparts in developed economies. This has allowed them to begin cutting rates much sooner. 

At its last meeting in July, the SARB’s Monetary Policy Committee (MPC) voted to pause interest rate hikes for the first time since the current hiking cycle started in November 2021. 

In the Reuters poll conducted last week, 17 of 20 economists predicted the repo rate would be kept steady next month at 8.25%, with 16 predicting no change again in November. 

The economists suggested the SARB will cut rates by 25 basis points as early as January 2024, with cuts following every subsequent quarter. 

Investec chief economist Annabel Bishop said the United States is expected to cut interest rates next year, and the SARB is expected to do the same, potentially from the first quarter of 2024.

A sister poll in the US suggested the US Federal Reserve is likely done raising interest rates.

Bishop added that easing inflation and potentially flat to lower interest rates next year would be a positive for households. 

Annabel Bishop
Investec chief economist Annabel Bishop

There are risks, however, to the largest component of inflation – food prices – due to the combination of climate change and El Nino conditions.

In South Africa, inflation is expected to slow further in the coming months and average 4.9% next year from 5.9% this year, and then fall to 4.6% in 2025. The SARB is mandated to keep inflation between 3% and 6%.

However, SARB deputy governor Fundi Tshazibana warned that the Reserve Bank may resume hiking interest rates if risks to the inflation outlook materialise. 

“We’ve been very clear this is not a solid pause because the risks remain significant,” Tshazibana said in an interview with Bloomberg TV on Thursday, citing double-digit food inflation.

“There are several vulnerabilities and risks that we are seeing,” she said, adding the central bank is also concerned by electricity, which is feeding into underlying prices.

The economy is experiencing its worst bout of power cuts, with this year’s outages exceeding those for all of 2022, because Eskom can’t meet demand from its ageing and poorly maintained plants.

Inflation slowed to 5.4% in June but remained above the 4.5% midpoint of the central bank’s target range, where it prefers to anchor price-growth expectations.

Policymakers predict inflation will only reach the midpoint in 2025 and closely watch inflation expectations for evidence they are moderating.


Top JSE indices