Interest rate relief coming for South Africans

Lesetja Kganyago

Standard Bank expects the South African Reserve Bank (SARB) to cut interest rates four times in 2024, with a 25 basis points cut each round. 

This will result in the repo rate declining to 7.25% at the end of the year as inflation continues to moderate towards the Reserve Bank’s range of 3% to 6%. 

Standard Bank’s chief economist, Goolam Ballim, expects interest rate cuts to begin in the second quarter of 2024. 

He said there is even an outside chance that the Reserve Bank will cut rates before the US Federal Reserve, provided inflation cools sufficiently. 

Recent statements by US policymakers suggest the Federal Reserve will delay its rate-cutting cycle due to stronger-than-anticipated economic data.

This should not stop the Reserve Bank from cutting rates if inflation continues to cool in South Africa. 

In this case, South Africa would follow other emerging markets, such as Brazil, Mexico, Hungary, and Poland, which have begun cutting rates before the Fed. 

“We anticipate that it will mostly be quarter-point cuts,” Ballim said. “We think we could conceivably cut before the Fed. The idiosyncratic path of inflation will matter to central banks more than the Fed.”

Standard Bank’s rate outlook is premised on its forecast that consumer price inflation will average 5% in 2024, just half a percentage point above the 4.5% mid-point of the SARB’s 3% to 6% target range.

Source: Standard Bank, Goolam Ballim

However, this will not provide much relief for South Africans as the Reserve Bank has hiked rates by a cumulative 475 basis points since it began in November 2021. 

This means rates will remain near historical highs even after interest rates are cut by 100 basis points this year. 

Ballim expects this to result in continued subdued household spending, impacting economic growth. He predicts economic growth of 1.2% for South Africa in 2024. 

South Africa’s domestic economic problems will compound the effect of global factors, resulting in the economy growing a mere 1.2% in 2024. 

Ballim said 2024 will be a year of two halves. The first half will build up to the election and be characterised by high uncertainty, while the second half will be spent digesting the election’s outcome. 

The national elections later this year have the potential to be era-defining, with the ANC facing the prospect of losing its majority for the first time in the democratic era. 

Despite this prospect, Ballim expects the ANC to be able to cobble together a majority at the national level, and so, in policy terms, not much would change. 

“We do not expect the election to derail the reform agenda, but the issues of crime and local governance will remain binding.” 

The crises at Eskom and Transnet will also weigh on economic growth. Logistics bottlenecks are expected to cut potential growth by up to 1% of GDP, while electrical shortages will cut growth by up to 2%. 

However, Ballim expects the situations at Transnet and Eskom to improve through 2024 as the government’s reform agenda bears fruit and the private sector invests heavily in these sectors.


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