Sun. May 19th, 2024

According to a recent Reuters poll, South Africa’s central bank is anticipated to implement a modest 50 basis points reduction in interest rates this year, downgraded from previous expectations due to ongoing concerns about inflation.

The projected cut is likely to amount to a 25 basis points decrease, bringing the rate to 8.00 percent in the next quarter, either in July or September. This adjustment marks a decrease from the previously forecasted 50 basis points reduction in a poll conducted in March.

The year-end repo rate is now predicted to stabilize at 7.75 percent, revised from the earlier estimate of 7.50 percent. This projection assumes another cut in November, as indicated by the latest poll results.

Razia Khan, the head of macro research for the region at Standard Chartered, has noted a revised outlook for South Africa’s easing cycle, expecting it to proceed more gradually and with less depth. Despite the possibility of inflation dropping below the central bank’s target band midpoint in the fourth quarter, Khan suggests that the easing may occur cautiously. The poll suggests a temporary dip in inflation at the end of 2024 followed by a resurgence early next year.

In March, the central bank maintained its main interest rate, citing the necessity for continued restrictive policies to address high inflation expectations. It pushed back the expectation for headline inflation to reach the 4.5 percent midpoint of its target range to beyond 2025. However, the poll indicates that this might happen in the third quarter of next year. Inflation is forecasted to average 5.1 percent this year and 4.6 percent next year.

Volkan Sezgin, a senior economist at Continuum Economics, warns that the March inflation drop might be short-lived due to factors such as drought conditions, rising oil prices, and a weakening rand. He anticipates the Reserve Bank delaying rate cuts until the third quarter, following the May 29 elections, contingent upon the trajectory of second-quarter CPI.

With South Africa scheduled to hold general elections next month, only two out of 20 economists surveyed indicate the likelihood of a rate cut at the upcoming Reserve Bank meeting. Economic growth forecasts remain at 1.1 percent for this year and 1.6 percent for next year, slightly improved from previous predictions.

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