When to expect interest rate cuts in South Africa

 ·10 Jan 2024

The South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) will sit for its first meeting of 2024 at the end of January, with economists expecting the central bank to hold the repo rate at 8.25%.

Global inflation and interest rates are trending downward after hitting a peak in the latter months of 2023, and many anticipate the US Fed to be eying a move lower for rates within the first half of the new year.

According to Investec chief economist Annabel Bishop, the SARB is likely to follow suit, though with a lagged approach.

Investec currently expects the SARB to hold on rates through July 2024, with the final two meetings for the year (September and November) bringing the cuts.

Bishop said that markets were more upbeat about lower interest rates before the US Federal Open Market Committee (FOMC) released its minutes for its last meeting in December. The minutes showed that the Fed was still moving with caution, tempering expectations for a quicker move to cut rates.

Before the minutes were published, markets saw a 75% chance that rates would be cut in March. This has now dropped to 50%. A guaranteed cut in May has also been dropped to an 87% chance.

For South Africa, Bishop noted that there was never a rate cut forecast for the first three months of the year anyway – but the dampened sentiment does point back to the “higher for longer” narrative that dominated the last half of 2023.

Notably, the SARB has consistently been on the hawkish side – so rate cuts are not expected to happen until at least the second half of 2024, Bishop said.

“South Africa’s Forward Rate Agreement curve factors in at least two 25bp cuts in the second half of 2024,” Bishop said.

“(The SARB) will view the CPI inflation rate above 5.0% y/y as a disincentive to any interest rate cuts in SA in the near-term. The central bank has communicated its determination to see CPI inflation regain the mid-point, of 4.5% y/y, of the inflation target range,” she said.

The latest print for CPI is at 5.5% y/y, and likely to remain above 5.0% y/y until March, only reaching 4.5% y/y in July.

“Additionally, risks to the inflation outcome are to the upside, with CPI inflation likely to rise to around 5.8% y/y in January,” Bishop said.

Despite this, inflation is still expected to average 4.5% for the year, with a drop expected in the second half.

Read: Interest rate relief for South Africa is coming

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