Economists anticipate that the Reserve Bank of South Africa will maintain its current repo rate in the upcoming week, according to a recent survey. The reasoning behind this forecast lies in the significant deceleration of inflation and the projected moderation in the months ahead, as the effects of previous rate increases gradually permeate the economy.
The survey of 21 economists from July 6th to July 12th revealed that 12 of them expected the South African Reserve Bank (SARB) to maintain its current rates at 8.25% on July 20th. On the other hand, the remaining nine economists indicated a different perspective, forecasting a 25 basis points increase in interest rates.
According to economists, the cumulative increase of 475 basis points implemented by the South African Reserve Bank (SARB) since November 2021 has resulted in sufficient tightening of financial conditions. This assessment suggests that the monetary policy actions taken by the SARB have effectively achieved the desired impact on the overall financial landscape.
In the United States, where monetary policy often exerts a significant influence on the global economy, there is a notable deceleration in inflation. The Federal Reserve will have an opportunity to cease its tightening of interest rates shortly, allowing them to refrain from a rate hike at its upcoming meeting in two weeks.
The poll results indicate that the cumulative easing of 75 basis points in the first three quarters of 2024 will lead to a target rate of 7.50%. This projection aligns with the ongoing moderation of inflation, bringing it closer to the midpoint of the target range.
The South African Reserve Bank (SARB) will take into account the performance of the rand, which serves as a barometer for imported inflation. The SARB closely monitors the fluctuations and performance of the currency as an important factor in the decision-making process. The challenging year experienced thus far, largely attributed to the difficulties faced by power utility Eskom in transmitting electricity through South Africa’s aging and strained power grid, makes the SARB’s consideration of the rand’s fortunes particularly significant.
According to Dennis Shen, a senior director at Scope Ratings, the South African Reserve Bank (SARB) might still opt for further rate hikes. Despite the decline in headline inflation, core inflation is still hovering around its peak levels. This situation could create a sense of unease among the hawkish members of the SARB, leading them to hesitate in prematurely halting the rate increases. Shen’s analysis suggests that there may be a continued cautious approach from the SARB to ensure that inflation remains well-managed and within the desired range.