What to expect for tomorrow’s interest rate decision
The Reserve Bank’s Monetary Policy Committee (MPC) meets again this week to decide the fate of South Africa’s interest rates, and experts are unanimous – there’s no reason to delay more rate cuts.
At its last meeting in September this year, the MPC decided to cut South Africa’s interest rates for the first time in years.
This cut was widely expected and welcomed, with millions of South Africans grateful for some relief after months of high interest rates.
Prior to the cut, South Africa’s interest rates had reached 15-year highs of 8.25% for the repo rate and 11.75% for the prime lending rate.
However, the start of the Reserve Bank cutting cycle saw these rates fall by 25 basis points. The repo rate now stands at 8%, and the prime lending rate is 11.50%.
There is general consensus among experts that the cutting cycle will continue well into 2025, although many have warned that the cycle will be shallow and short.
Many economists expect only around 100 basis points of cuts, implemented between September 2024 and July 2025.
Several factors, including the US Federal Reserve’s hawkish outlook, are pressuring the SARB to keep rates higher for longer.
However, South Africa’s low inflation spells good news for larger cuts. On Wednesday, 20 November, Stats SA revealed that South Africa’s inflation rate has dropped to a more than four-year low.
Annual consumer price inflation was 2.8% in October 2024, down from 3.8% in September 2024.
This low rate is a good sign that the SARB will continue its cutting cycle at its next meeting on Thursday, 20 November.
Daily Investor compiled the predictions and comments from economists and financial experts on the MPC’s decision tomorrow.
Mark Phillips – PPS Investments Head of Portfolio Management and Analytics
PPS Investments’ Mark Phillips said October’s lower inflation indicates that South Africa will likely get another rate cut on Thursday.
He said October’s print is the lowest since June 2020, during the Covid-19 pandemic, when the rate was 2.2%.
He explained that falling fuel prices remain the primary factor behind the slowdown. Between September and October, petrol and diesel prices declined by 5.3%, bringing the annual fuel rate to 19.1%.
In addition, after remaining steady in the 4.5% to 4.7% range, annual inflation for food and non-alcoholic beverages retreated to 3.6% in October. Phillips pointed out that this is the lowest rate since November 2019.
“The slowdown to below the lower end of the central bank’s 3% to 6% inflation target range will likely persuade the MPC to ease monetary policy,” he said.
“The move in the annual inflation rate provides a supportive environment for the Reserve Bank to continue cutting interest rates.”
Phillips expects the MPC to cut the policy rate by 25 basis points to 7.75%, as they will keep global economic uncertainties and potential shifts in US policy in mind.
- Prediction: 25 basis point cut
Elna Moolman – Standard Bank Group Head of South Africa Macroeconomic Research
Standard Bank’s Elna Moolman said that although the deceleration in inflation is a positive development, it may be temporary.
“The decline in inflation is, to a large extent, owing to the steep decline in fuel prices, but the surprise in the data was that food inflation remained even more benign than we expected,” she said.
“This dip in inflation to below the target range should be quite temporary, so we expect a gradual uptrend in the inflation numbers from here.”
“And, as such, the Reserve Bank is likely to look through this temporary decline in its interest rate decisions.”
Moolman explained that the Reserve Bank typically focuses on inflation 12 to 18 months ahead, when monetary policy can impact inflation prints.
“We still think that the Reserve Bank will gradually cut interest rates until it reaches a neutral level, in other words, until interest rates are no longer restrictive like they are now, but just having a neutral impact on the South African economy,” she said.
- Prediction: 25 basis point cut
Annabel Bishop – Investec Chief Economist
Investec’s Annabel Bishop said that inflation’s moderation is largely due to significant fuel price drops between May and October this year, along with a general drop in international food prices and ongoing rand strength on average over the period.
However, she warned that November has seen an interruption to the trend, with a 25 cents/litre petrol price rise, while international agricultural food prices have lifted by 2.33% month-on-month to date.
In addition, she pointed out that the rand has been materially weaker so far this month on average.
“November also sees a switch to a low statistical base a year ago, when inflation fell by -0.1% m/m, which will further contribute to a higher inflation outcome for November, of above 3.0% y/y,” she said,
“December so far is showing little change in the petrol price, and December also sees a low statistical base of a year ago.”
Therefore, Bishop said there will be some upward pressure on both November and December’s CPI inflation outcomes, ending the disinflationary cycle this year.
“With CPI inflation well below target, and likely to remain so for the rest of this year and most of next, the MPC is still expected to trim the repo rate by 25 basis points tomorrow at its meeting,” she said.
“South Africa’s inflation target remains 4.5% and has not been lowered by the National Treasury, and so there is no reason for the SARB not to cut interest rates tomorrow.”
- Prediction: 25 basis point cut
Johann Els – Old Mutual Chief Economist
Old Mutual’s Johann Els said South Africa’s current economic landscape is marked by a noteworthy trend of declining inflation throughout the year.
From a relatively stable start, inflation has gradually softened, reaching a year-low in October.
Els said this decrease represents a significant turning point, potentially marking the lowest inflation rate observed in the current cycle.
“The inflationary landscape is showing signs of substantial relaxation, evident not just in transient factors like fuel but across a spectrum of consumer goods, from food to durable goods, all indicating minimal inflationary pressures,” he said.
With this backdrop, Els advocates for a bold monetary policy move – the Reserve Bank should consider a 50-basis point rate cut in its upcoming decision.
Els believes this move is justified by the underpinning economic conditions and critiqued the SARB’s traditionally cautious stance, suggesting that the current environment provides a unique opportunity for more assertive action.
“Given the shortfall in inflation recently and projections that it will remain subdued, a more substantial rate cut would align with the economic signals we are observing,” he said.
Els also expressed concern that the SARB might opt for a more conservative 25 basis point cut, influenced by global economic uncertainties and potential shifts in US policy.
He warned that this caution, while prudent, may not fully capitalise on the opportunity to stimulate economic growth at a crucial time.
“The Reserve Bank’s approach, while typically geared towards mitigating risk, should also be responsive to clear economic indicators,” Els said.
“We have a window to support economic recovery more robustly without jeopardizing our inflation targets.”
“With inflation at a record low and economic indicators supporting a potential uplift, the coming days could define the trajectory of the country’s economic recovery and growth for the months ahead.”
- Suggestion: 50 basis point cut
FNB economists
FNB economists Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, and Koketso Mano said this year has been marked by political and economic uncertainty.
These factors have driven market volatility and shifting expectations for monetary policy in South Africa.
Initially, forecasts predicted that the SARB would cut interest rates in July after the national elections. However, this was delayed due to fluctuating economic data and market reactions.
Similarly, in the US, interest rate projections also evolved significantly, with the Federal Reserve cutting rates twice since September.
In addition, the Republican sweep in the recent US elections and expected policy shifts under Donald Trump’s administration have added further complexity, impacting global monetary policy considerations.
Therefore, for its final 2024 meeting, FNB expects the SARB to cut the interest rate by 25 basis points.
The economists said this aligns with falling rates in advanced economies and South Africa’s softer inflation, supported by ongoing structural reforms.
However, they warned that the SARB will likely remain cautious, flagging risks such as geopolitical tensions in the Middle East and the US dollar’s strength against the rand, which could influence inflation.
Key risks include US import tariffs, labour cost increases, and looser fiscal policies, all of which may drive global inflation higher and complicate monetary policy.
While these challenges unfold, FNB said the SARB is expected to prioritise current economic fundamentals over speculative risks, with rate cuts anticipated to continue into 2025.
- Prediction: 25 basis point cut
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