The South African Reserve Bank (SARB) is expected to keep the repo rate unchanged at 8.25% on November 23rd and wait until May 2024 before cutting rates. The decision comes as policymakers grapple with the risk of rising inflation and uncertainty over the timing of global rate cuts.
A Reuters poll of 20 economists showed that all respondents believe Singapore’s central bank will leave its main interest rate unchanged next Thursday. South Africa’s central bank left its September repo rate unchanged despite inflation well within its 3-6% target range, citing concerns that deteriorating public finances could exacerbate price pressures.
According to the median forecast of a sample of 13 economists, the RBA is expected to maintain its current policy stance in January and March 2024 before cutting rates by 25 basis points to 8.00% in May. Previous polls had forecast a rate cut in the first quarter.
However, there is no clear consensus on the exact timing of the first rate cut, with five economists predicting a cut in May, two predicting a 50 basis point cut and six predicting no change. Of the 10 economists who responded to an additional question, 8 said the greater risk to the timing of the first rate cut by the SARB is that it will come later rather than earlier than they expect.
The recent cooling of U.S. inflation has triggered market speculation that the Fed may forego further rate hikes and begin cutting rates in May. This could have a domino effect on global central banks, including South Africa’s central bank.
However, some economists have warned that South Africa’s central bank will be wary of easing monetary policy too soon, especially if changes in the global interest rate outlook suggest rates will continue for longer.
“I don’t expect the stance to change next week. Better-than-expected US CPI and PPI data certainly favors my view that we have reached a stable level of local interest rates, along with lower oil prices, a stronger rand, and noteworthy fuel prices likely to fall in early December,” said independent economist Elize Kruger.
Despite the uncertain global interest rate outlook, a Reuters poll suggests that South Africa will cut rates by a further 25 basis points to 7.75% in July or September next year, followed by a further 25 basis points in November. Another 25 basis point cut is expected in early 2025 to 7.00% by the end of the year.
Median inflation is expected to slow to 4.9% next year and 4.6% the year after, both up 0.1 percentage points from last month. This year’s inflation rate is expected to be 5.8%.
Median economic growth for next year is 1.3 percent, 0.1 percentage point higher than in last month’s survey, compared with this year’s estimate of 0.7 percent. Power shortages have hampered business activity in South Africa.