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Members of the Bank’s monetary policy committee (MPC) and governor Lesetja Kganyago said the situation was still not out of the woods
The SA Reserve Bank is widely expected to start a rate-cutting cycle in September. This move is supported by local and global inflation trends and improved sentiment in SA after the elections. The formation of the government of national unity is perceived to be a stable and in all likelihood a business-friendly one.
However, members of the Bank’s monetary policy committee (MPC) and governor Lesetja Kganyago said the situation was still not out of the woods. They pointed out the uncertainty about the trajectory of certain volatile drivers of consumer inflation such as food and fuel. During a media interface, Kganyago said the risk environment for inflation remained volatile.
SA consumers have been under much pressure over the past two years amid high headline inflation and interest rates. The repo rate was last adjusted in May 2023 when the Bank raised the rate by 50 basis points (bps) to a 15-year high of 8.25%. Borrowing costs have surged 475bps since November 2021, putting pressure on indebted South Africans and the economy.
In its July statement the MPC said that while the forecast had improved, the balance of risks was assessed to the upside, prompting the decision to hold off on a rate cut. Uncertainty about how the rand would perform continued to underpin upside risks for food and fuel price inflation.
However, inflation has moderated markedly since the beginning of the year. This and a more positive performance of Rand since after the elections coupled with a global softening in inflation and a growing expectation that the US Federal Reserve might start cutting rates in September, have contributed towards markets now pricing in rate cuts of at least 25bps in SA in September and November.
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According to its most recent update, the Bank expects inflation to return to the midpoint of its 3%-6% target band in the fourth quarter of 2024 after previously forecasting price increases would dip below 4.5% only by the second quarter of 2025. Headline consumer price inflation for this year is projected at 4.9%. In July, SA’s consumer inflation dipped below 5% for the first time in a year, easing to 4.6% from 5.1% in June. The Bank expects inflation to moderate to about 4.5%, the midpoint of its target, in the coming months.
