Interest rates in South Africa this week – the best you can hope for

Many experts have pushed their first interest rate cut expectation to the end of the year, with the best outcome this week that South Africans can hope for is that interest rates are kept on hold.

South Africa’s Reserve Bank (SARB) will decide on its interest rate stance this week on Wednesday (27 March).

Annual consumer inflation in South Africa for February 2024 was higher than economists had anticipated, which has dampened hopes for a reduction in interest rates by the South African Reserve Bank (SARB) in the near future.

According to Stats SA, inflation increased to 5.6% in February from 5.3% in January and 5.1% in December.

Most market analysts expected a flat or slightly higher reading between 5.3% and 5.4%, with only a few outliers predicting a higher figure.

The higher-than-expected inflation print has continued to feed the ‘higher for longer’ narrative around interest rates.

Reserve Bank Governor Lesetja Kganyago told Bloomberg that interest rates are unlikely to change any time soon.

“The inflation outlook is uncertain, and it’s been volatile. Until inflation stabilizes where we want it, at 4.5%, and is sustained there, we don’t see why we should change our monetary policy stance,” he said.

Investec economist Lara Hodes affirmed Kganyago’s sentiments, noting the SARB is projected to leave the repo rate unchanged at 8.25% this week, which is in line with the FOMC’s most recent decision.

Recent data out of the US has pointed to stubbornly high inflation, tempering the market’s expectations of the pace and scale of the Fed’s cuts this year.

Analysts started 2024 under the impression that early rate cuts could be coming – but these views have now pushed back the earlier cuts to mid-year at best and after Q3 at worst.

Kganyago listed food prices, geopolitical risks and their impact on global supply chains and energy markets as some of the upside risks to the inflation outlook.

Adding to this, Investec chief economist Annabel Bishop noted domestic pressures are expected to worsen for food prices as the El Nino has intensified, bringing extreme heat and below-average rainfall to some areas.

Going forward, this means the bank is now only expecting the SARB to begin cutting rates in Q3 2024, with its first 25bp cut pencilled in for September.

Given this prospect, property expert and Seeff Property Group chairman Samuel Seeff added that “the best we can hope for is that there is no rate hike this week, but we remain upbeat that rate cuts will come by mid-year”.

Other notable banks that align with these sentiments from the property sector and Investec are Nedbank and Stanard Bank.

Standard Bank expects the Reserve Bank to reduce rates by 75 basis points in 2024, beginning only in September.

Additionally, Nedbank noted the MPC is anticipated to leave interest rates unchanged at this week’s meeting.

“The committee will likely hold as inflation’s descent towards the 4.5% target stalled over the past two months.

“The Governor has repeatedly stressed that the MPC wants to see headline inflation trending towards the 4.5% midpoint of the target range in a compelling and consistent manner before considering rate cuts.

“Clearly, headline inflation is not there yet,” it said.

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