South Africa could see another rate cut in 2017: economists
A Reuters poll of 27 economists shows that there is a persistent belief that the South African Reserve Bank could cut interest rates again in 2017, following a surprising cut of 25 basis points last month.
Eleven of 27 economists polled during this week forecast an interest rate cut of varying amounts – expected in November at the latest, or in September, earliest – while five economists said that the SARB would hold on rates.
The prevailing expectation is that the SARB will hold rates next month, and then cut another 25 basis points in November.
The central bank announced a surprise cut of 25 basis points to 6.75% for the first time in five years last month, saying that the decision was taken as the rand remains resilient, but vulnerable to global monetary policy developments and credit ratings downgrades.
It warned, however, that it would not hesitate to reverse the decision should economic changes require it to do so.
According to economists polled by Reuters, there is still room for another rate cut, and it would be “quite easy to justify” three cuts in a row – July, September and November.
However, the central bank has proven to be more prudent on this front, which is why there is a prevailing belief that a cut will only happen in November.
South Africa’s economy
Polled economists also believe that South Africa’s economy is going to become more volatile, being faced with more sovereign credit rating downgrades – particularly from Moody’s and S&P Global.
The former ratings agency has South Africa’s local and foreign debt rating at one notch above junk status, and has warned that poltical instability and policy uncertainty could push both into sub-investment grade sooner rather than later.
S&P, meanwhile, already has South Africa’s foreign debt in junk, and has the country’s local debt (which makes up 90% of the figure), sitting precariously at one notch above junk. It, too, has warned that political instability and populist policies by the ANC government are a big threat.
Political turmoil is expected to ramp up in the fourth quarter of the year, as the ANC heads into its elective conference in December.
Key findings from the polled economists are around South Africa’s growth rate. The median view is that South Africa escaped a third quarter of decline (an indication that it is pulling out of recession) – but the growth outlook for 2017 as a whole is still incredibly low at only 0.8%.
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