What to expect for interest rates this week

The South African Reserve Bank (SARB) is set to make a decision on the country’s interest rates on Thursday, 30 May, when many experts think it will leave the repo rate unchanged.

South Africa has been in a hiking cycle since November 2021 in an effort to bring the country’s high, sticky inflation within the Reserve Bank’s target range of 3% to 6%.

The Monetary Policy Committee (MPC) has hiked interest rates by a cumulative 475 basis points since the start of the hiking cycle.

This has brought the repo rate to a 15-year high of 8.25% and the prime lending rate to 11.75%.

The MPC’s efforts have yielded some results, as South Africa’s CPI has been within the 3% to 6% range since June 2023.

The most recent inflation print saw CPI hit 5.2% in April 2024.

However, SARB Governor Lesetja Kganyago has repeatedly said the MPC would like to see inflation come down sustainably and be anchored around the mid-point of the target range – 4.5% – before they will consider cutting rates.

As the MPC gears up for its meeting this week, Daily Investor asked experts for their interest rate predictions.

Adriaan Pask – PSG Wealth chief investment officer

PSG Wealth’s chief investment officer, Adriaan Pask, believes the MPC will keep rates steady at its upcoming meeting.

He said the committee seems concerned about potential rand devaluation if they lead either the US Federal Reserve or European Central Bank (ECB) with rate cuts. 

“In our view, the Fed will only cut September at the earliest, while the ECB is likely to commence cutting in June,” he said. 

“If they do, there is a chance that we will see some MPC members start to vote for cuts as early as the 18 July meeting, but if we are conservative in our assumption, we say that we will see cuts no later than at the 21 November meeting.”

Maarten Ackerman – Citadel chief economist

Citadel chief economist Maarten Ackerman said he is not expecting an interest rate cut from the SARB this week. 

This is because South Africa’s inflation is still at the upper end of the target range, which is between 3% and 6%. 

Before it cuts interest rates, the SARB would like it to be closer to 4.5% or below 4.5%. He said the expectation is that inflation is still a little bit sticky, and it will, therefore, take a little longer to get there. 

South Africa’s Reserve Bank acts in line with the US Federal Reserve, where there is a similar issue of inflation not allowing it to cut interest rates just yet. 

“We believe interest rate cuts are only likely to happen in the second half of this year,” Ackerman said. 

“The SARB cutting rates now would remove some of the attractiveness of having higher interest rates.” 

He explained cutting rates can cause the rand to weaken which is inflationary and will not help South Africa reach its inflation targets. 

“Given that the Fed is not yet cutting rates, this paves the way for the SARB to stay up and to make no changes for now,” he said.

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

Matrix Fund Managers’ Kim Silberman anticipates that the SARB will maintain its current policy stance at the MPC meeting on 30 May. 

She said the SARB is likely to be mindful of the potential risks to the currency arising from the uncertainty surrounding the country’s election results. 

With South Africa’s real interest rate currently at approximately 3.0%, which significantly exceeds the real GDP growth rate, the monetary policy stance is considered restrictive. 

She said this restrictive stance is expected to persist until the post-election period when the market has had time to digest the election outcomes. 

In addition, she foresees that the SARB will likely wait for a more substantial decrease in the US policy rate in real terms before implementing a rate cut, allowing for a wider real interest rate differential.

Xhanti Payi – PwC senior economist

Xhanti Payi, senior economist at PwC South Africa

PwC senior economist Xhanti Payi said South Africa’s inflation remains sticky upwards, with the latest reading of 5.2% only slightly lower than the 5.3% seen in March 2024. 

Inflation has been above 5% this year to date and thus remains much higher than the 4.5% midpoint. Core inflation also remains high at 4.6%. 

Payi said core inflation is regarded as the most stable measure of inflation as it excludes food, fuel and energy, which are all highly volatile. 

This has also remained concerningly high because it suggests that there are structural contributors to rising prices.

These contributors may include South Africa’s energy and logistic challenges, and shortcomings on the supply side or production of goods for availability in the market.

“We have also heard the SARB governor suggest that they would like to lower the inflation target to as low as 2% to 4%. This would require that interest rates remain higher for longer,” he said.

Pay said another consideration is the actions of large economic partners like the US and the UK.

US inflation remains stubbornly high, having fallen slightly from 3.5% to 3.4% at its latest count. Expectations are that inflation will remain high in the near term. 

“This restricts their ability to reduce interest rates, which are now at a 23-year high. This tells us that South Africa will also be hesitant to reduce rates,” Payi explained.

In the UK, inflation declined to 2.3%, which was encouraging. The Governor of the UK Central Bank suggested that a cut is on the cards and could be as early as June. 

However, he cautioned that this would be data-dependent and based on the analysis of global risks that could lead to higher inflation.

In addition, Payi said one of the key risks to keep an eye on is the situation in the Middle East, which, if it escalates, could see oil prices rise and global transport and energy prices accelerate.

Therefore, while inflation has softened marginally, and with food price inflation expected to continue to remain low, there are numerous risks to the upside.

“Thus, we can expect that the SARB will keep interest rates unchanged and higher for longer,” he said. 

“As PwC, we expected a rate cut in the second half of the year. However, global geopolitics seem to be working against us, and our inflation remains stubbornly high.”


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