{"id":843680,"date":"2025-11-18T17:57:00","date_gmt":"2025-11-18T15:57:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=843680"},"modified":"2025-11-18T17:57:31","modified_gmt":"2025-11-18T15:57:31","slug":"good-news-about-interest-rate-cuts-this-week","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/843680\/good-news-about-interest-rate-cuts-this-week\/","title":{"rendered":"Good news about interest rate cuts this week"},"content":{"rendered":"\n

With South Africa sitting in a swell of optimism, and the National Treasury formally adopting a new inflation target for the country, economists are now more certain about the Reserve Bank’s rate-cutting path.<\/p>\n\n\n\n

Specifically, the adoption of the 3% inflation target by the finance department indicates a significant step toward enhanced policy coordination with the Reserve Bank and reinforces a credible fiscal framework for the country.<\/p>\n\n\n\n

According to Tertia Jacobs, Treasury Economist and Fixed Income Specialist at Investec, this in turn integrates a lower inflation trajectory into baseline forecasts, resulting in a technical adjustment of index-linked spending.<\/p>\n\n\n\n

This means budgetary items like social grants and wage increases should follow this new guideline, setting the country up for a much more disciplined path forward.<\/p>\n\n\n\n

Notably, the new 3% target also comes with a one percentage point tolerance band, which gives the SARB and the government some flexibility to work with.<\/p>\n\n\n\n

The public sector wage bill, for example, has a threshold of 4.0% over the next two years, after which it will be renegotiated, Jacobs noted.<\/p>\n\n\n\n

Overall, the adoption of the new target puts the Reserve Bank on a better footing to manage the interest rate environment going forward, with the central bank reiterating that, once stabilised around the target, interest rates are likely to come down in the long term.<\/p>\n\n\n\n

However, this has given some economists pause over what will happen in the interim. The National Treasury announced that the new target would be implemented over the next two years, which lines up with the SARB’s own projections for how long it would take to stabilise inflation around the target.<\/p>\n\n\n\n

Despite this, Jacobs said the Investec Corporate Institutional Banking (ICIB) expectation is for a unanimous vote from the Monetary Policy Committee to cut interest rates by 25 basis points this week.<\/strong><\/p>\n\n\n\n

According to Investec Chief Economist Annabel Bishop, while markets see an 80% chance of an interest rate cut this week, it will all boil down to how the MPC views the balance of risks.<\/p>\n\n\n\n

The MPC not only factors in local moves, like the adoption of the new target, but also international moves.<\/p>\n\n\n\n

“The SARB may choose not to ease the repo rate at its last MPC meeting of the year, as the US has signalled it is unlikely to cut its interest rates again this year, given the reduced data publications in the US on the government shutdown,” Bishop said.<\/p>\n\n\n\n

While the US government has reopened, markets are still waiting for crucial data to be published. With the SARB’s MPC sitting this week, the data may come too late to avert any hesitation or hawkishness.<\/p>\n\n\n\n

Inflation still a concern<\/h2>\n\n\n\n
\"\"<\/a>
Investec’s Tertia Jacobs<\/figcaption><\/figure>\n\n\n\n

With a lower inflation target, CPI data this week will also play a role.<\/p>\n\n\n\n

The MPC raised its inflation forecasts slightly in September to 3.4% for this year, and 3.6% y\/y for next year.<\/p>\n\n\n\n

October inflation data out on Wednesday is expected to creep higher to 3.6%, up from 3.4% in September and 3.3% in August. Notably, inflation outcomes have been lower than expected.<\/p>\n\n\n\n

According to Bishop, the MPC expected Q3.25\u2019s CPI inflation average at 3.6% y\/y instead of the outcome of 3.4% y\/y. <\/p>\n\n\n\n

2025 is still likely to come out at 3.2% y\/y, and Q4.25 at 3.5% y\/y\u2014but this is still lower than the 4.0% y\/y forcasts in September, Bishop noted.<\/p>\n\n\n\n

Economists at Nedbank are also cautious about the call thanks to the inflation figures.<\/p>\n\n\n\n

The bank said that its inflation forecasts suggest reason for caution, given that inflation is trending upwards and away from the 3% target.<\/p>\n\n\n\n

However, it added that the upside risks to the outlook appear limited, “and monetary policy seems a bit restrictive for an economy lacking any meaningful momentum”.<\/p>\n\n\n\n

Because of those two factors, the bank changed its expectation for the MPC outcome this week from a hold to a 25 bp cut, in line with wider expectations.<\/p>\n\n\n\n

“Although inflation is slowly rising, underlying domestic price pressures are contained, and global disinflationary pressures are mounting,” it said.<\/p>\n\n\n\n

“As a result, we believe there is space to cut the policy rate by 25bps, moving the real rate closer to neutral ground.”<\/p>\n\n\n\n

However, even if the MPC eases rates this week, Nedbank said its forecasts suggest that the real policy rate will remain relatively high, hovering just above 3% at the end of the year. <\/p>\n\n\n\n

“Our view now aligns with the rate path recommended by SARB’s Quarterly Projection Model in September, which reflected another 25-bps cut before the year is done.”<\/p>\n","protected":false},"excerpt":{"rendered":"

With South Africa sitting in a swell of optimism, and the National Treasury formally adopting a new inflation target for the country, economists are pencilling in rate cuts this week.<\/p>\n","protected":false},"author":10,"featured_media":691341,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[1498,1799,3619],"class_list":["post-843680","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-investec","tag-nedbank","tag-sarb"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/843680","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=843680"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/843680\/revisions"}],"predecessor-version":[{"id":843691,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/843680\/revisions\/843691"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/691341"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=843680"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=843680"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=843680"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}