Standard Bank sees interest rates at 7% until 2027

Africa’s largest lender by assets expects South Africa’s repo rate to come down in 2024 before stabilising at 7% for 2025 and 2026, indicating that interest rates will remain higher for longer. 

This was revealed by Standard Bank’s chief economist, Goolam Ballim, at the company’s Economy 2024 event. 

The bank expects the Reserve Bank to cut interest rates four times in 2024, with each round being a 25 basis point cut. 

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%. 

Ballim expects rate cuts to begin in the second quarter of 2024 and said there is an outside chance the Reserve Bank may start cutting rates before the Federal Reserve in the US. 

However, the percentage point decrease in the South African repo rate will leave interest rates near historic highs. 

The Reserve Bank has hiked rates by a cumulative 475 basis points since it began in November 2021, taking rates to a 14-year high of 8.25% in May 2023. It has since left rates unchanged. 

Standard Bank expects little long-term relief for South Africans, forecasting the repo rate to decline to 7.25% by the end of 2024 but then only being cut to 7% for the following two years. 

The bank’s forecast is part of a growing consensus around interest rates being higher for longer as an increasing number of economists and institutions expect inflation to be structurally higher than in the past. 

For example, Bank of America expects the Reserve Bank to cut interest rates from July 2024 onwards but said rates would remain elevated over the long term. 

In its ‘Emerging EMEA: South Africa – election, cuts and budget’ report, senior economist Tatonga Rusike said it is unlikely the Reserve Bank will cut rates as quickly and deeply as the market expects in 2024 and 2025. 

While the market anticipates a much steeper cutting cycle, with nearly 100 basis points cut in 2024 beginning in May, there are “domestic setbacks that could constrain earlier and more substantial cuts”. 

These include uncertainties regarding the severity of load-shedding in 2024, Transnet’s deteriorating performance, and policy uncertainty surrounding the national elections. 

“The bad news is that the cutting cycle is likely to be shallow – a cumulative 125 basis points over two years to 2025 compared with 475 basis points of hikes from November 2021 to May 2023,” Rusike said.

Bank of America expects the Reserve Bank to begin cutting rates in July, with a cumulative 75 basis points cut in 2024 and a further 50 basis points in 2025. This will take the repo rate down to 7%.

Rusike cautioned that this outlook depends on domestic inflation continuing to moderate on lower global oil prices and central banks cutting rates in developed markets. 

South Africa’s national elections in 2024 also pose a challenge to the Reserve Bank, with the increased uncertainty likely to ensure it keeps rates higher for longer. 


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