Get ready for good news this week

Economists and analysts anticipate the start of South Africa’s rate-cutting cycle when the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) meets later this week.

The MPC is expected to announce its next policy move on Thursday (19 September), where consensus has landed on a 25 basis point cut to interest rates.

The MPC voted to hold rates for the eighth consecutive time in July, keeping it at 15-year highs.

The repo rate has been held at 8.25%, with the prime lending rate at 11.75%. The rates remain the highest they have been since 2009 and have been in effect since May 2023.

The decision was in line with market expectations, where most economists anticipated a hold—however, it came with a twist in that two members of the committee favoured a rate cut of 25bp at the time.

This has fed into positivity around coming cuts this week, as not only is there dovish support for the cut within the MPC, economic data, locally and globally, are also setting a positive tone.

Forward-looking inflation expectations are coming down, and inflation for August is expected to be much cooler than before. Internationally, there is also likely to be a move to cut rates by the US Fed, giving some room for the local central bank to follow.

A more accommodative stance from the Fed could ease global financial conditions, support a stronger Rand, and contribute to lower inflation in South Africa over the coming months.

According to Old Mutual Group Chief Economist Johann Els, the cut by the Fed could be deeper than many anticipate, with a possible 50 basis point cut.

He said that the SARB is likely to cut rates in September and again at its final meeting for the year in November—and the cuts may be deeper than the market anticipates.

“With the Fed likely cutting rates and local inflation pressures easing, the SARB should be confident in cutting rates at the upcoming meeting.”

“If the CPI data shows inflation continuing its downward trend, as expected, the SARB may find itself with more flexibility to cut rates and support the economy without jeopardising its inflation-targeting mandate.”

He said that one of the key factors to watch in the CPI report will be core inflation, which excludes volatile items such as food and energy.

Core inflation is an important measure because it reflects underlying price pressures in the economy, beyond short-term fluctuations. In July, core inflation was recorded at 4.3%, and any further decline will likely reinforce expectations for an interest rate cut.

Els noted that “the underlying trend in price pressures has been particularly weak, with core inflation showing a steady decline over the past three months.”

Petrol prices have been a major driver of inflation in recent months. With prices declining by a cumulative R3.22 per liter since June, the CPI report will likely reflect lower transportation costs, which could push headline inflation further down.

However, he warned the South Africa is still far from out of the woods when it comes to inflation—something the SARB has been quick to point out at its meetings over the past year and a half.

“Administered prices, such as electricity, continue to remain high and could put upward pressure on inflation. The balance between these factors will be critical in determining the final CPI figure for August,” he said.

Els warned that inflation remains a long-term concern, particularly with fixed basket weightings that don’t capture changes in consumer spending habits. However, he said he is optimistic about inflation continuing to fall.

“We’ve significantly turned the corner on inflation, and rate cuts must come. All eyes will now be on the SARB’s meeting on 19 September to see if the central bank follows through on these expectations,” he said.

Read: What to expect from interest rates in South Africa next week