Hopes dashed for bigger interest rate cut in South Africa
South Africa’s Reserve Bank is set to ignore a sharp slowdown in inflation and only cut interest rates by a modest quarter percentage point as new risks to its outlook emerge.
All 20 economists surveyed by Bloomberg expect Governor Lesetja Kganyago to lower the rate to 7.75% from 8% when he announces the monetary policy committee’s decision after 15h00 on 21 November at a briefing north of Johannesburg.
The vote-split prediction leans toward all six members of the panel backing the cautious move.
While annual inflation slowed to 2.8% in October, taking it below the central bank’s 3% to 6% target range, it is “likely to look through this temporary decline,” said Elna Moolman, Standard Bank’s head of South Africa macroeconomic research.
She sees a 25 basis point cut.
The rand, a bellwether for emerging market currencies, has depreciated almost 3% against the dollar since Donald Trump won the US election on 5 November.
Investors bet his policies on tariffs and tax cuts may see the Federal Reserve cut rates by less than forecast.
That could keep the US currency strong, which is bad news for South Africa as it makes its imports more expensive, adding to domestic price pressures.
Johann Els, chief economist at Old Mutual Group, said the MPC will probably “highlight the risks of the new incoming administration in the US, the policy risk around that quite significantly. “
The MPC will also be concerned by negative sentiment toward emerging market assets after Russia’s war with Ukraine entered a dangerous new phase this week when Kyiv’s forces carried out strikes on a border region in Russia using Western-supplied missiles.
The panel won’t think the “inflation story has fully gone away, so they are going to be cautious on their implementation of interest rate cuts,” said Koketso Mano, senior economist at FNB. “Gradual is better than too quick.”
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