All indications are pointing to a cut in the repurchase rate (repo rate) later this week by the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC).
Many economists predict a cut of 25 basis points (BPS) will be announced by SARB governor Lesetja Kganyago on Thursday.
The repo rate is currently at a 14-year high of 8.25% and the prime lending rate is 11.75%.
If a 25 BPS cut is announced, the repo rate will fall to 8% while the prime lending rate in the country will drop to 11.50%.
Absa’s SA Macroeconomics team said on Monday that they were expecting a 25BPS cut.
"Our view is line with the Thomson Reuters consensus, with 18 of the 21 analysts (including Absa Research) polled last week calling for a 25bp cut while the remaining 3 expecting no change. We believe that the case for a cut has strengthened since the July MPC when the committee voted 4:2 (with 2 supporting a 25bp cut) in favour of a hold. Headline CPI inflation has come in softer than expected and was already close to the mid-point of the target range in the July data at 4.6%.“
“With the exchange rate having strengthened further and Brent crude oil prices tapering, the outlook for inflation has improved further and headline CPI inflation now seems likely to be below the mid-point of the target range from September through Q3 25, in our view. Despite this improved inflation outlook, however, we believe the SARB will prefer a gradual approach to cutting rates in order to anchor inflation expectations more firmly around the mid-point of the target range,” Absa said.
“The details of the statement, including the MPC vote split, SARB’s assessment of the external environment and risks to the domestic outlook will be interesting for understanding how the policy stance is likely to evolve in the future.”
Global economic factors, such as the anticipated US Federal Reserve rate cut just a day earlier, are also adding pressure on the SARB to take a more accommodative stance.
Old Mutual Group Chief Economist, Johann Els, said that the SARB will have room to cut rates at both of its remaining meetings for the year, in September and November.
“I expect interest rates to be cut, perhaps more than expected by the market. With the Fed likely cutting rates and local inflation pressures easing, the SARB should be confident in cutting rates at the upcoming meeting. Inflation could drop to around 4.1% in September and below 4% in October – possibly as low as 3.5%,” Els said.
“For South African consumers, this would provide much-needed relief after enduring the highest interest rates in over a decade. Lower rates could spur economic growth, though structural issues such as labour costs and sluggish productivity gains continue to weigh on the economy. While monetary policy can provide temporary relief, the underlying structural challenges remain a critical issue for long-term growth,” Els said.
Apart from consumers who are paying back debts, the automotive industry as well as the property sector have been hard hit by the elevated interest rates.
Samuel Seeff, chairman of the Seeff Property Group, said the time had arrived for an interest rate cut.
Seeff said, “The interest rate has now simply been too high for too long, and cannot be delayed any longer. It has caused more damage than good.The higher than necessary rate is hampering growth in the economy and property market. First-time homebuyers are struggling to get into the market while middle class homeowners have had to absorb additional monthly bond repayments of up to R1,500 to R3,000 more per month in addition to the higher cost of living and other credit commitments.”
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