Bank of America (BofA) has pushed forward its expectation over when South Africa’s interest rate cutting cycle will begin.<\/p>\n\n\n\n
In line with BofA’s and the broader market’s expectations, the South African Reserve Bank’s (SARB’s) monetary policy committee (MPC) kept the repo rate at 8.25% when it met last week. <\/p>\n\n\n\n
However, minority voters for a cut emerged earlier than BofA’s September baseline.<\/p>\n\n\n\n
Four committee members called for a hold, while two voted for a cut of 25 basis points. <\/p>\n\n\n\n
“This represents a departure from last year when the policy rate was kept unchanged with unanimous votes. The monetary policy outlook is getting interesting again,” said BofA. <\/p>\n\n\n\n
SARB inflation forecasts have been revised down below the 4.5% target from Q4 2024 and into 2025, meaning that monetary policy should move to neutral from its current restrictive stance.<\/p>\n\n\n\n
Although inflation expectations are not yet at 4.5% levels, they are still trending downwards. <\/p>\n\n\n\n
In addition, following the formation of the Government of National Unity (GNU), the rand has been stronger, closer to R18 per USD from R19 in the last MPC meeting. <\/p>\n\n\n\n
“Domestic inflation data is pointing to cuts sooner rather than later,” said BofA.<\/p>\n\n\n\n
“We now expect SARB to start cutting in September by 25bps, followed by November, January, and March – totalling 50bps in 2024 and a further 50bps in early 2025.” <\/p>\n\n\n\n
“We also think the latest SARB forecasts open up the possibility of an outsized cut in September (say 50bp), should the Fed cut then, and a lower terminal rate of potentially 7% as early as 1Q 2025.” <\/p>\n\n\n\n
This marks a significant shift in BofA’s thinking. The company previously believed that the cutting cycle would only start in January 2025, with a 25bps cut. This would then be followed by cuts in March, May, and July, leading to a cumulative 100bps of cuts. <\/p>\n\n\n\n
That said, BofA noted that the SARB could be cautious due to concerns about the pace of cuts globally and the potential impact on the rand. <\/p>\n\n\n\n
“Markets are pricing multiple US Fed cuts this year starting in September, although our US economists are not convinced so far, given the economy is not cooling as\u00a0yet,” said BofA.<\/p>\n\n\n\n