Renowned economist Dawie Roodt predicts that there will be no further interest rate hikes this year, with the potential of an interest rate cut late in 2023 or early 2024.
Yesterday, StatsSA announced that the annual CPI was 4.7% in July 2023, significantly down from the 5.4% recorded in June 2023.
July’s rate is within the South African Reserve Bank’s (SARB’s) inflation rate target range of 3% to 6% and close to its midpoint of 4.5%.
South African inflation has now hit a two-year low and was significantly better than market expectations.
Roodt said it bodes well for interest rates in South Africa, as the Reserve Bank has achieved what it set out to do with its rate hikes.
“I expect the Reserve Bank to make a lot of noise about the risk of inflation, but it is not going to increase interest rates at its next meeting,” he said.
The next SARB Monetary Policy Committee (MPC) meeting and interest rate decision will occur on 21 September.
Roodt said the current repo rate, at 8.25%, and the inflation rate at 4.7% is where it should be based on the Reserve Bank’s mandate.
“If inflation remains where it is and by the end of the year starts drifting lower, there is a possibility of a rate cut by the end of 2023 or early 2024,” he said.
Sanisha Packirisamy, an economist at Momentum Investments, shares Roodt’s view, saying the latest inflation figure substantiates another pause in the interest rate in September.
However, Packirisamy expects interest rate risks to delay a potential Reserve Bank interest rate cut to later next year.
The risks include global food price uncertainty, oil prices, El Niño, higher administered prices, the energy crisis, logistics constraints, higher salaries, and persisting rand weakness.
“Taking the balance of risks to inflation and growth into account, we expect a protracted pause in interest rates and the first interest rate in the second quarter of next year.
Nedbank’s economic unit said lower inflation will probably prompt the Reserve Bank to maintain steady interest rates for the remainder of 2023.
It expects the first cut in the first quarter of 2024 and the repo rate to fall to 7.25% by November 2024.
“The latest inflation figure greatly reduces the likelihood of another SARB hike, even if the Fed hikes further in September,” Nedbank said.