Good news for Reserve Bank interest rates

Lesetja Kganyago

The South African Reserve Bank (SARB) will not hike interest rates again in 2023 and will begin lowering the repo rate steadily through 2024. 

This is according to PwC in its South Africa Economic Outlook for August 2023. 

PwC said it believes that the repo rate has peaked alongside a decline in consumer price inflation. 

South Africa’s annual consumer price inflation (CPI) cooled in July, continuing its downward trend in recent months.

StatsSA announced today that annual CPI was 4.7% in July 2023, significantly down from the 5.4% recorded in June 2023. This is the lowest inflation the country has seen since July 2021.

In June, the inflation rate fell within the South African Reserve Bank’s (SARB) target range for the first time since April 2022.

July’s rate is also within the SARB’s target range of 3% to 6% and far closer to its target midpoint of 4.5%.

August CPI data will come out on the 20th of September, a day before the SARB will announce its interest rate decision. 

PwC said they are also monitoring the real repo rate, which is the inflation-adjusted return provided by domestic interest rates.

In other words, this is how much higher or lower interest rates are compared to inflation. 

The SARB expects the real repo rate to increase from -1.4% in 2022 to 2.7% in 2023 and 3% in 2024. 

This is above the SARB’s view of a neutral real repo rate of 2.5%, indicating that its target will be reached this year and, thus, a sign that it will no longer hike interest rates. 

PwC said the next move the Reserve Bank makes will most likely be to cut rates and inflation drops further. 

The Reserve Bank expects inflation to fall to an average of 5% in 2024 and 4.5% in 2025, which gives it room to begin cutting rates around the middle of next year. 

However, PwC said interest rate cuts will not be done as dramatically as the repo rate was hiked, with only two percentage points being cut off by the end of 2025. 

Based on the firm’s current forecasts, the repo rate would be around 6.25% at the end of 2025, bringing it back to pre-pandemic levels. 


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