Economists and analysts are heavily predicting that there will be no change to the interest rate from the South African Reserve Bank (Sarb) later this week.
On Thursday, the Sarb’s Monetary Policy Committee (MPC) is expected to keep the repurchase rate (repo rate) unchanged at 8.25% since May, 2023 as headline consumer inflation remains above the 4.5% midpoint of the 3% to 6% target range.
Nedbank Group’s economic unit said it expects the MPC to maintain its holding pattern at the meeting, with the Sarb’s inflation forecast unlikely to change much from those put forward in May, which saw the headline figure stabilising around its 4.5% target in Q2, 2025.
“Our assessment suggests that the risks to the inflation outlook remain relatively balanced. Some of the concerns raised at May’s MPC meeting have either not materialised or receded somewhat. The latest BER survey on inflation expectations showed some moderation over the next three years by all participants, while the rand held up better than expected in the face of political uncertainty against a relatively rangebound US dollar.
With the uncertainties around the elections, the shape of the new government, and the chosen policy course largely cleared up, global forces will likely reassert their dominance over the rand’s course during the remainder of this year,” Nedbank said.
“On this score, recent inflation and labour market outcomes in the US have been encouraging, leading to more dovish undertones on monetary policy from the US Fed and other major central banks. The prospect of lower US interest rates should help to buoy global risk appetites and potentially support a steadier rand in the months ahead.
And finally, domestic trading conditions improved with the economy enjoying a prolonged spell without load shedding. This, combined with still relatively subdued demand should help to keep input costs and price pressures in check. In contrast, global oil prices remained high and volatile over the past two months, reflecting the threat posed by the ongoing conflict in the Middle East as tensions between Israel and Hezbollah escalated,” it further stated.
Nedbank said its forecast is for headline inflation to resume its slow downwards trend in June, easing to 5.1% from 5.2% in May.
“Thereafter, inflation will likely be sticky but steady just above the 5%-level until September, before drifting lower from October onwards, ending the year at 4.9%. The disinflation process will remain relatively slow. The stickiness will stem from the lower statistical base, still high domestic-cost structures and inefficiencies, and a moderate pick-up in food inflation later this year. The downwards pressure will come from continued global disinflation, subdued domestic demand, and a firmer rand. Altogether, we forecast inflation to average 5.1% in 2024, easing to 4.6% in 2025, and 4.5% in 2026,” Nedbank said.
“We expect the Sarb to keep the repo rate at 8.25% at next week’s meetings, waiting for direction on US monetary policy and for domestic inflation to gain some downwards traction. We believe that conditions will be more supportive of monetary policy easing towards the end of Q3. Consequently, we still expect the first 25-bps cut in September, followed by another of the same margin in November. The repo rate is forecast to end the year at 7.75%, taking the prime lending rate to 11.25%. Real interest rates will increase further, stabilising above 2% as inflation dips below 5% later this year and throughout next year,” Nedbank stated.
Meanwhile, the property industry called on the Sarb to start cutting interest rates as property sales have plummeted by 25% due to buyers delaying their purchases to wait out the high borrowing costs.
Giovanni Gaggia, CEO of Real Estate Services, said, “The upcoming interest rate announcement holds significant weight for the South African property market. A cut in interest rates would be a welcome relief for both buyers and sellers. For buyers, lower interest rates translate to reduced monthly bond repayments, making homeownership more affordable and potentially boosting demand.
“This increased activity can invigorate the market, leading to a sales uptick and potentially even upwards pressure on property values. From the seller’s perspective, it will relate to a revitalisation of the property market, greatly needed at this time for property owners, especially those feeling the pinch at the moment.
“In essence, an interest rate cut has the potential to create a positive ripple effect throughout the entire property ecosystem. It’s a pivotal moment that could set the tone for the market’s performance in the coming months,” Gaggia said.
Seef Property Group on Friday said the delays in cutting the interest rate were doing more damage than good to the economy and property market.
Seef chairman Samuel Seeff said property transaction volumes have now plummeted by 25% to a lowly 17 350 monthly average compared to 23 100 in 2021 when the interest rate was at 7.25%, following a promising start to the year.
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