Reserve Bank interest rate expectations

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) is set to meet on Thursday, and many experts believe the committee will not hike the repo rate again, but cuts will only come next year.

Since the interest rate hiking cycle started in November 2021, the MPC has hiked the repo rate ten times by a cumulative 425 basis points.

This has brought the repo rate to a 14-year-high of 8.25% as the SARB has attempted to bring South Africa’s high, sticky inflation down and within its target band of 3% to 6%.

Their efforts seem to have borne fruit, as inflation has moderated to within this band and is now close to the mid-point of the target (4.5%), as July’s inflation print showed CPI standing at 4.7%.

At its last two meetings, the MPC paused the hiking cycle, as inflation had fallen and was within the 3% to 6% target range.

However, headline inflation has steadily increased again, rising to 5.4% in September, although it is still within the target.

This has sparked fears that the MPC would vote to hike the repo rate again to temper inflation.

SARB Governor Lesetja Kganaygo has repeatedly warned that the MPC would remain data-dependent in all future decisions.

Ahead of the next MPC meeting on Thursday, 23 November, Daily Investor asked experts for their interest rate predictions, and there was an overwhelming consensus that the SARB will keep the repo rate unchanged at 8.25%.

Maarten Ackerman – Citadel chief economist

Citadel chief economist Maarten Ackerman said, in line with other central banks around the world, South Africa’s Reserve Bank will likely remain on hold for now.

“Our inflation numbers are behaving at this point, and if we look at the recent decline in the petrol price, inflation pressures going forward are probably going to be under control,” he said.

In addition, depending on the data, the next move in interest rates will likely be lower. However, he said that will likely only play out in the latter part of 2024.

  • Prediction: No change

Adriaan Pask – PSG Wealth CIO 

PSG Wealth CIO Adriaan Pask said it is most likely that the MPC will keep rates stable, as this is in pace with other major reserve banks across the world. 

He explained that the need to take action to strengthen the currency has also dissipated with the recent strength of the rand. 

“This is balanced against an economy that has been struggling under tighter monetary policy conditions and load-shedding, and the growth problem is affecting the consumer, businesses, and ultimately the fiscus too,” he said.

  • Prediction: No change

Wichard Cilliers – TreasuryONE director and head of market risk 

TreasuryONE director and head of market risk Wichard Cilliers expects the MPC to announce its decision to maintain the repo rate at 8.25% on Thursday. 

He said this prediction aligns with the consensus and market expectations. 

“However, a notable shift towards a more dovish stance is anticipated in the MPC’s vote distribution, potentially moving from the previous 3-2 split to a 4-1 or 5-0 decision,” he said. 

“This change is influenced by recent dovish inflation developments, including slightly softer price data than expected, a significant drop in oil prices, and a strengthening rand.” 

However, despite these factors, substantial changes in the SARB’s inflation forecasts or its view on potential inflation risks are not anticipated.

Cilliers said global inflation trends have also been lower than expected, affecting market expectations for central banks worldwide, including the Federal Reserve. 

However, the SARB is likely to make only minor adjustments to its forecasts and maintain its cautious stance regarding the rand and oil prices and the persistence of inflation risks.

He said that, since the last MPC meeting, positive surprises have occurred. 

For example, the Finance Minister’s Medium-Term Budget Policy Statement’s fiscal projections have provided positive surprises.

“While the SARB might view these developments favourably, the market remains sceptical about implementing the announced spending cuts,” he said. 

“The SARB is likely to share this scepticism, which could limit the impact of these fiscal updates on its monetary policy decisions. However, successful implementation of tighter fiscal policies could, in the future, allow for a less restrictive monetary policy.”

  • Prediction: No change

Kim Silberman – Matrix Fund Managers economist and macro strategist

Matrix Fund Managers economist and macro strategist Kim Silberman said the peak in rates has been reached globally and in South Africa. 

“Consequently, at this meeting, analysts and investors will be trying to glean some clues about when the SARB could be ready to cut the repo rate,” she said. 

“We expect the usual game of cat and mouse between journalists’ questions and the governor’s answers. He will give nothing away if things go as usual.” 

She said interest rate derivatives imply almost 100 basis points of cuts over the next 12 months, with the first 25 basis point cut expected in April 2024.

However, she believes the SARB will not be able to cut ahead of the US Federal Reserve Bank. 

“Contrary to popular belief, that is not always the case, and historically, the SARB has moved in response to domestic inflation, not US rates,” she explained. 

“But this time is different, firstly because South Africa’s interest rate spread over the US policy rate is historically low, and secondly because our inflation is forecast to fall to the midpoint of the target band of 4.5% only in 2025.”

The forecast that inflation will fall gradually also leads Silberman to believe that rate cuts will be in increments of 25 basis points rather than 50 or 75. 

“We expect that SA’s neutral real rate is likely to settle at between 2.0% and 2.5%. If inflation is maintained between 4.5% and 5%, nominal rates can be cut to between 6.5% and 7.5% from 8.25% currently.”

  • Prediction: No change

Christie Viljoen – PwC South Africa senior economist

PwC South Africa senior economist Christie Viljoen expects the repo rate to remain unchanged.

He3 said the exchange rate, industrial production and international monetary policy factors all point to local policymakers not needing to increase the repo rate further at this time

Interest rates have likely reached their peak, and the next move will be down, which PwC expects to happen around the middle of 2024. 

The next round of SARB forecasts will help economists refine their predictions of when interest rates will start coming down and by how much. 

However, he said it is quite certain that the SARB will not be cutting the repo rate as deeply as it did during the Covid-19 crisis. 

“At present, we believe the repo rate could ease by a cumulative 150 basis points between mid-2024 and end-2025.”

  • Prediction: No change


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