Africa-Press – South-Africa. The Monetary Policy Committee (MPC) is scheduled to make its first interest rate decision for 2024 next week; however, experts expect the rates to remain unchanged as inflation risks remain.
The Bureau for Economic Research (BER) noted that the most important domestic data release will be the consumer inflation (CPI) figure for December, which will be released by Stats SA on Wednesday (14 January).
“Following a food- and fuel-driven acceleration in October’s CPI print to 5.9% y-o-y, headline inflation moderated to 5.5% in November and is set to have slowed further to 5.3% in December.
“This would leave average annual inflation at 5.9% for 2023. Except for a temporary bump (driven by steep medical aid premium increases) in early 2024, inflation is set to slow through the year,” it said.
Despite this, inflation will likely only reach the midpoint of the SA Reserve Bank’s (SARB) inflation target towards Q4 – in line with the November 2023 forecast of the SARB.
“This expectation, coupled with significant remaining upside inflation risks, means that we expect the SARB to keep the interest rate on hold in next week’s meeting (25 January),” the BER said.
Following the renewed uptick in inflation expectations, the Bureau added that the statement may even reflect a slight hawkish tilt and signal that the bar for rate cuts remains high.
Forecasts for the year ahead
For now, South Africa can expect to see the first interest rate cut in the third quarter of the year. In a televised interview with SARB governor Lesetja Kganyago earlier this week, he said that inflation has remained more sticky than anticipated and that it would need to move closer to the target before monetary policy would be eased.
The BER’s sentiments towards inflation and the MPC’s interest rate decisions for 2024 echoed those of the Bank of America (BofA) and Nedbank, which also expects the SARB to only cut rates in the second half of the year, with the first cut in May and July.
Nedbank noted it firmly believes the SARB has reached the end of its hiking cycle. “Shrinking consumer spending and slowing credit growth suggest that policy rates are restrictive enough, which the SARB itself has reiterated several times,” it said.
“As domestic demand weakens further and global disinflation intensifies, headline inflation should decelerate more convincingly towards the SARB’s preferred 4.5%,” it added.
Nedbank’s base case scenario is for the SARB to keep rates unchanged at its January meeting, followed by a cumulative cut of 100 bps throughout 2024, with an initial reduction of 25 bps at the May meeting.
However, it added that The SARB could shift the first rate cut out to July if the rand tumbles ahead of the elections and the US starts its monetary easing later than we expect.
This forecast takes the repo rate to 7.50% and the prime lending rate to 11% by the end of the year.
The BofA also forecasts a total of 75 basis points cut in 2024 and a further 50 basis points in 2025 – taking the repo rate down to 7%.
While the market expects a much steeper cutting cycle, with nearly 100 basis points cut in 2024 beginning in May, there are “domestic setbacks that could constrain earlier and more substantial cuts”.
These include uncertainties regarding the severity of load-shedding in 2024, Transnet’s deteriorating performance, and policy uncertainty surrounding the national elections.
“The bad news is that the cutting cycle is likely to be shallow – a cumulative 125 bps over two years to 2025 compared with 475 bps of hikes from November 2021 to May 2023,” Senior economist at BofA Tatonga Rusike said.
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