South African Reserve Bank interest rate predictions from top economists

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) is set to meet again this Thursday, 25 January, and most experts believe this meeting will be uneventful as the committee will keep the repo rate unchanged.

Since the current interest rate hiking cycle started in November 2021, the MPC has hiked the repo rate ten times by a cumulative 475 basis points.

This has brought the repo rate to a decade-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%.

However, after slowing slightly in the following months, inflation began to climb again in October, reaching 5.9%.

Inflation fell again slightly in November, but SARB Governor Kganyago has warned that one reading does not provide sufficient reason for the MPC to cut interest rates.

Kganaygo has repeatedly said the MPC would remain data-dependent in all future decisions.

As the next MPC meeting looms, Daily Investor asked several experts for their interest rate predictions, and there was an overwhelming consensus that the SARB will again keep the repo rate unchanged at 8.25%.

FNB economists

Mamello Matikinca, FNB South Africa chief economist

FNB South Africa economists said that, at this time last year, the cyclical global growth rebound was expected to fade, and inflation had peaked, but central banks were still engaged in a campaign to tighten lending conditions.

This was done as insurance against persistently elevated inflation expectations. 

“A year later, things have not changed drastically. Global growth is poised to soften further, and while inflation has eased meaningfully, it remains above target in about 60% of emerging and advanced economies,” the economists explained. 

“However, central banks are broadly viewed as having ended their tightening cycle but should remain hawkish given the risk posed by geopolitical tensions as well as easing financial conditions and resilient households in some cases.” 

Therefore, while FNB is confident that this week’s MPC meeting will be uneventful, it will still provide some key insights into the initial diagnosis of the economy in 2024.

They added that this may encourage a reconfiguration of market expectations for interest rates.

Jan-Daan van Wyk – Stonehage Fleming senior analyst

Stonehage Fleming senior analyst Jan-Daan van Wyk said he believes domestic interest rates have likely reached their cycle peak and will probably be lower by the end of this year. 

“We believe the SARB will maintain the repo rate at its current restrictive level of 8.25% until after the South African national elections have been held, the Fed has started cutting US interest rates, and some of the fiscal pressures have eased domestically.”

He added that current market pricing implies cuts from the second half of this year, which he thinks is a fair guidance.

Christie Viljoen – PwC South Africa senior economist

PwC South Africa senior economist Christie Viljoen said the SARB left interest rates unchanged in the second half of 2023, which economists have taken as a signal the lending rates have peaked. 

“With forecasts pointing to a slow moderation in inflation over the next two years, the next move in monetary policy will likely be a cut in the repo rate,” Viljoen said. 

However, he warned this is not likely to start until the middle of 2024. 

At the January 2024 MPC meeting, the SARB is expected to confirm its projections for easing inflation and its willingness to ease interest rates once inflation is close to the midpoint of the 3% to 6% target range – 4.5%. 

He said the SARB would also emphasise that policy decisions are based on economic data and that an adverse shock to inflation could result in higher rates for longer. 

Johann Els – Old Mutual chief economist

Old Mutual chief economist Johann Els expects the policy repo rate to remain unchanged at 8.25%, marking the fourth consecutive meeting without a rate change, with the prime interest rate currently at 11.75%.

Els expects a unanimous decision from the MPC to maintain the rates, citing ongoing upside inflation risks. 

“These risks include weaker global growth impacting the rand exchange rate and, consequently, inflation,” he said. 

Additionally, Els points out potential threats to food prices from El Niño and the possible escalation in conflicts that could drive oil prices higher.

Despite these concerns, Els forecasts a continuation of the easing of inflation in the coming months. 

“This outlook is supported by the lack of demand pressure on inflation, a stable and potentially stronger rand, and favourable base effects,” he said.

Els also predicts headline inflation will continue to decrease, potentially falling below 5% by February and around 4.5% by March 2024.

While acknowledging the risks, Els is confident the MPC will keep interest rates unchanged. 

“By the March MPC meeting, further evidence of easing inflation and inflationary pressures should be available, potentially paving the way for rate cuts,” he said. 

Els predicts rate cuts beginning in March, with a total reduction of 100 to 125 basis points possible throughout 2024.

“These lower inflation and interest rates, combined with the likely ongoing, albeit slow, job recovery, should assist consumers,” he said. 

“I am optimistic that 2024 will turn out to be somewhat better, even if still subdued, compared to 2023.”

Kim Silberman – Matrix Fund Managers macro-economist and fixed income strategist 

Matrix Fund Managers macro-economist and fixed income strategist Kim Silberman said the SARB Governor was decidedly hawkish and warned of inflation risks at the last MPC meeting.

“If anything, those inflation risks are rising due to Red Sea turmoil as well as our own logistics issues,” she said. 

“With Cape fruit exporters being the latest to join the chorus bemoaning the port problems, it is clear that the issues are widespread and unlikely to be rapidly resolved.”

Given these risks, Silberman said South Africa is unlikely to cut interest rates ahead of the US Federal Reserve, which has been expected to cut from March this year.

However, she added that even that prediction is receding, and a quarter-two cut is becoming more likely. 

“We, therefore, look to rates being unchanged at this week’s MPC meeting,” she said.

Adriaan Pask – PSG Wealth CIO

PSG Wealth CIO Adriaan Pask expects the MPC to leave rates unchanged at its Thursday meeting. 

“In our view, interest rates have peaked, and we are likely to follow the Fed down with our first cut in May this year,” he said.

Lara Hodes – Investec economist

Investec economist Lara Hodes said the SARB is projected to leave the repo rate unchanged at 8.25%, in line with the Federal Open Market Committee’s most recent decision. 

However, going forward, she expects the SARB to begin cutting rates with the first 25 basis point cut pencilled in for the end of the third quarter of 2024.  

“Indeed, the SARB has conveyed its determination to see CPI inflation reach 4.5%, the mid-point of the inflation target range this year,” she said. 

“However, risks to the inflation outcome remain to the upside, with CPI inflation likely to rise to around 5.8% year-on-year in January.”

Hodes said CPI inflation is forecast to have eased to 5.2% in December from 5.5% in November. 

The petrol price cut in December of 65c/litre will have reduced inflationary pressure from the transport component of the CPI basket. 

Moreover, another petrol price cut was implemented in January, offering a further reprieve. 

Lisette Ijssel de Schepper – Bureau for Economic Research senior economist

Bureau for Economic Research senior economist Lisette Ijssel de Schepper said that following a food- and fuel-driven acceleration in October’s CPI print, headline inflation moderated to 5.5% in November.

She said CPI is set to have slowed further to 5.3% in December. This would leave average annual inflation at 5.9% for 2023. 

“Except for a temporary bump – driven by steep medical aid premium increases – in early 2024, inflation is set to slow through the year,” she said. 

“Still, it will likely only reach the midpoint of the SARB’s inflation target towards Q4.” 

She said this expectation, coupled with significant remaining upside inflation risks, means the SARB will likely keep the interest rate on hold in this week’s meeting. 

“Following the renewed uptick in inflation expectations, the statement may even reflect a slight hawkish tilt and signal that the bar for rate cuts remains high,” she said. 

“For now, we expect to see the first interest rate cut in the third quarter of the year.” 


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