2024 South African interest rate cut expectations from top economists

The South African Reserve Bank (SARB) cut rates for the first time in years at its September meeting, and some of South Africa’s top economists expect another cut before the end of the year.

The SARB’s Monetary Policy Committee (MPC) embarked on a hiking cycle in November 2021 in response to signs that South Africa’s inflation may be rising at a concerning rate.

Therefore, at nearly every meeting since November 2021, the MPC has hiked South Africa’s interest rates to bring inflation down and within its target range of 3% to 6%.

At first, their efforts were fruitless, with inflation remaining stubborn and continuing to climb.

South Africa’s CPI hit a peak of 7.8% in July 2022, the highest it had been in years. In 2022, it averaged 6.9%, up significantly from 4.6% the year prior.

However, after this peak, inflation started its downward trajectory and slowly but steadily declined.

Therefore, in May 2023, when the CPI hit 6.3%, the MPC opted not to hike rates for the first time in months and kept them stable for more than a year.

However, the committee repeatedly warned that this did not signify the end of the hiking cycle, and further increases could still come.

This saw the repo rate remain at a 15-year high of 8.25% and the prime lending rate remain at 11.75% for well over a year.

Over this time, South Africa’s inflation continued to decline, with CPI finally falling within the SARB’s target range in June 2023.

However, the SARB was still not satisfied and said it wanted inflation to be anchored around the mid-point of its target range, 4.5%.

In July 2024, CPI hit 4.6%, and a month later, it fell to 4.4%. This gave the SARB enough reason to cut interest rates for the first time in years at its September meeting.

The MPC opted to cut rates by 25 basis points. Reserve Bank Governor Lesetja Kganyago said some members considered a 50 basis point cut, but in the end, all members agreed on a smaller cut.

This lowered the repo rate to 8% and the prime lending rate to 11.50%.

This decision brought much-needed relief for South African consumers, who have been put under significant pressure from the country’s high cost of living.

However, many argued that it was not enough and are now eager for the SARB to continue cutting.

Daily Investor asked three of South Africa’s top economists for their expectations regarding interest rate movements for the remainder of the year and found that all three expect another cut this year.

When making his prediction, Citadel chief economist and advisory partner Maarten Ackerman considered that there was only one formal meeting left for 2024 and South Africa’s current inflation dynamics.

He said it was also important to consider that the drop in oil and a stronger rand reduced inflation pressure in 2025.

Based on these factors, Ackerman expects the SARB to continue with an orderly reduction of another 25 basis points at the November MPC meeting.

Nedbank chief economist Nicky Weimar expects another 25 basis point rate cut at the final meeting of the MPC in November, followed by three cuts of 25 bps each next year, amounting to a cumulative 75 bps reduction in 2025. 

“We expect inflation to remain below the SARB’s 4.5% target during the final months of this year before stabilising around the target over the next three years,” she said. 

She explained that inflation will be kept in check by continued global disinflation and a steadier rand, which will help subdue imported inflation and gradually lower production costs throughout the economy. 

“While domestic demand is expected to recover and gather pace, we do not anticipate significant demand pressure on prices as easing structural constraints should facilitate moderately faster growth without generating substantial inflationary pressures,” she said. 

“At the same time, the outlook for food inflation has improved as global agricultural production increased and the threat of the El Nino weather pattern subsided.” 

Weimar also identified several key upside risks to the inflation outlook, including:

• The threat of another round of steep electricity tariff hikes
• Persistent above-target administrative inflation
• Growing concerns over the likely impact of the Middle East conflict on global oil prices 
• A generally volatile rand

“We are a little more comfortable about the rand’s prospects given that the US Fed is widely expected to ease monetary policy further, which will likely weigh on the US dollar and buoy global risk appetites,” she said.

Her sentiments were shared by Standard Bank’s Head of South Africa Macroeconomic Research, Dr Elna Moolman, who expects the SARB to cut interest rates by 25 basis points at the remaining MPC meeting in November.

She expects this to be followed by two further 25 basis point cuts at the first two meetings in 2025.

Moolman pointed out that, at the time of the September MPC meeting, the SARB cut by 25 basis points after also considering a 50 basis point cut. 

“This was despite a significant improvement in the SARB’s inflation forecasts and reflected the bank’s cautious approach amid significant forecast risk,” she said. 

“Indeed, there were some inflationary developments since that September MPC meeting, with a spike in oil prices and relapse in the rand exchange rate.” 

“These inflationary movements – higher oil prices and a weaker exchange rate – would likely reinforce the SARB’s caution even if they reverse.”

In other words, she said these inflationary changes will likely support the bank’s cautious approach and allow it to continue cutting gradually in 25-basis-point increments.

She explained that the cumulative 100 basis point interest rate cuts that Standard Bank foresees in this cycle – this includes the 25 basis point cut in September – should provide some relief to the consumer and modest impetus for economic growth. 

“This is one of the reasons for the acceleration that we foresee in 2025, to around 1.8% from an expected 1.1% in 2024,” she said.