Investors shift interest rate expectations for South Africa in 2024

 ·4 Mar 2024

Expectations from fund managers in South Africa paint a worrying picture for interest rates, with many now expecting further delays to the cutting cycle.

According to the latest Bank of America (BofA) South Africa Fund Manager survey, despite an improved core inflation outlook for the country, more fund managers have delayed their expectations of when the South African Reserve Bank will cut interest rates.

A net 67% now expect the first repo rate cut in Q3 2024, with the remaining 33% expecting a cut in Q2 2024.

In January, the figures were inversed, with a net 67% expecting the first rate cut in Q2 2024.

However, there are still some glimmers of hope for South Africa among investors.

A net 38% of those surveyed said they expect the economy to get “a little stronger.” This is an improvement from the 13% and 29% seen in December and January, respectively.

In addition, a higher net (75%) managers expect core inflation to be “‘slightly lower” – an improvement from the 50% in January.

Core Inflation over the next yearDecJanFeb
A lot higher0%0%0%
Slightly higher7%7%6%
Slightly lower73%57%81%
A lot lower7%0%0%
Don’t know0%0%0%
Net higher/lower-73%-50%-75%

The views on interest rates will be tough news to bear, however. The repo rate has been at an almost 15-year high of 8.25% since May.

Despite fears that a US interest rate cut could be delayed until the end of the year due to the US presidential elections, Investec Chief Economist Annabel Bishop said that the US and South Africa will likely start cutting rates in the middle of the year.

South Africa is, however, expected to only cut rates after the USA, when inflation returns to the SARB’s target midpoint of 4.5%.

This sentiment was echoed by Reserve Bank governor Lestja Kganyago.

“Rates are where they are because inflation is what it is,” said Kganyago.

“The task of taming inflation is not yet done. Until that is done, I don’t see why there should be a change in the monetary stance.”

Bad news for the rand

Expectations of relief for the rand have also taken a turn for the worse, according to BofA’s survey.

The 12-month rand forecast has weakened from an improved R17.73/$ in January to R18.35/$ in February.

Source: BofA

This sentiment is, however, not universal, with Investec’s base case prediction for the rand seeing the currency strengthening to R17.80/$ by Q4 2024 and staying around that level until Q4 2025.

The base case, including 2.0% GDP growth over five years, a modest transition to renewables and a temporary greylisting, has a 45% chance of occurring.

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