Rate cut on the cards? Not so fast…

Although the South African Reserve Bank (SARB) is likely done hiking its benchmark repo rate, and inflation has cooled beyond expectations, the beginning of a rate-snipping cycle come September is not close to possible.

This is the consensus view of some economists pondering the next move by the Monetary Policy Committee (MPC) following last week’s inflation print, which showed the Consumer Price Index (CPI) slowed down to flirt with the Reserve Bank’s preferred midpoint of its 3% to 6% inflation target band.

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Inflation: Lowest level in two years…rate cut?

Statistics SA data last week showed that inflation slumped to 4.7% in July – the lowest level in two years, after surprisingly falling back within the target band in the prior month at 5.4%.

The SARB has rapidly raised interest rates to 8.25% since November 2021, taking it up from pandemic lows of 3.5% in the wake of stubborn inflation. Its inflation-fighting campaign since then has delivered a cumulative 475 basis points (bps) increase, which was halted at the last rate-setting meeting when the MPC decided to leave it unchanged.

At its coming September meeting, the MPC is likely to continue its inaction, Tatonga Rusike, sub-Saharan Africa economist for the Bank of America (BofA), suggests, saying “the good news likely ends with July CPI”.

“We see the current policy rate as the terminal rate,” Rusike said in BofA’s South Africa Watch report on the latest inflation figures.

Municipal rate increases for water and electricity bode badly for inflation, with moderate increases on the cards, he said.

“But [it will] remain close to the 5% mark to year-end,” he added.

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Festive cheer? CPI could land at 5.8%

His projections were corroborated by Frank Blackmore, lead economist at KPMG, who said it is too soon to expect a rate cut.

“I think there’s just a lot of uncertainty. We saw last month the increase in the electricity [prices],” Blackmore said.

He said the August inflation print could reveal an uptick despite having relatively low inflation currently. By the end of the year, CPI could land at 5.8%.

The SARB’s cutting cycle may commence in November with a 50bps reduction, just in time for the December festive season, Blackmore predicts.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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