SARB may start cutting rates next month, says Standard Chartered

Outside view of the South African Reserve Bank building in Pretoria. Picture: Bongani Shilubane Independent Newspapers

Outside view of the South African Reserve Bank building in Pretoria. Picture: Bongani Shilubane Independent Newspapers

Published Feb 16, 2024


The South African Reserve Bank (SARB) will likely kick-start its rate-cutting cycle at the end of next month, Standard Chartered economists say.

They added that the National Treasury may have to consult the central bank on the potential use of its Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to hedge against short-term fiscal concerns.

The SARB’s GFECRA is currently treated as “a contingent asset of the state” while the “value of its unrealised gains help to reduce net debt” levels.

Standard Chartered’s chief economist for Africa, Razia Khan, said hedge funds and civil society economists were arguing that South Africa did not need excessive reserves and that a proportion of GFECRA gains could be used either to reduce debt or as revenue for the state.

“The SARB argues that R100 billion of the current R497bn in the GFECRA tends to be impacted by market volatility, and running down the country’s reserve buffers at a time of heightened uncertainty may not be the best strategy,” he said.

Any near-term fiscal concerns could thus be mitigated by “consultations between the National Treasury and the SARB on the potential use of the GFECRA to offset the fiscal” deficit. 2024 will likely be a busy year for the Treasury as well as SARB, which is expected to start its rate-cutting cycle this year.

Although there is some consensus among a wide section of economists that the rate-cutting cycle will kick in during the second half of the current year, other economists, such as Khan, believe the cycle will start next month.

Tatonga Rusike, a Bank of America analyst for sub-Saharan Africa, said recently that the SARB would start cutting rates in the second half of the year.

Rand Merchant Bank analysts said yesterday that the SARB would begin “its cutting cycle in July” 2024.

Standard Chartered holds a different view, arguing that the rate-cutting cycle will start at the end of March before picking up pace at the May and July meetings of the SARB’s Monetary Policy Committee (MTBPS).

“We now expect cuts of 25bps (basis points) each at the March, May and July 2024 meetings. We still forecast 75bps of easing to 7.50% in 2024, and a further 75bps of easing to 6.75% in 2025,” said the financial institution.

Other economists believe that the SARB will delay its cutting cycle to later in the year, while ratings agency S&P said earlier this year that “the South African Reserve Bank’s tight monetary stance will likely persist in 2024”.

Standard Bank economists see the apex bank instituting four rate cuts of 25bps (0.25%) each by the end of 2024, ultimately, reducing the repo rate to 7.25% and the prime to 10.75%.

“If Standard Bank is correct and rates are cut by 100bps (1.0%), that would be good for REITS and retailers. Banks would see some contraction in their net interest margins, but if the yield curve steepens, it would benefit the banks,” said market observer Karin Richards on social media platform, X.

According to Standard Chartered, the expected inflation slowdown and the SARB’s easing of interest rate hikes “could attract greater inflows” of investment into South Africa.

It said the “increased investment flows will be reinforced by the Treasury’s MTBPS announcement that SA Government Bond issuance will not increase further” in 2024

The resurgence in foreign direct investment as well as portfolio investments will likely help South Africa finance a possible current account deficit.