The South African Reserve Bank (Sarb) will be announcing its latest decision by the Monetary Policy Committee (MPC) later this week on the repurchase rate (repo rate) for the country.
Hot on the heels of underwhelming inflation data that was released last week, which was well below the Sarb’s target range, it is likely that consumers will not be getting a reprieve with a rate cut.
Data from Statistics South Africa (StatsSA) this past week showed that headline inflation softened to 5.2% in April year-on-year, down from 5.3% in March and 5.6% in February, as general food inflation slowed except for vegetables, fruit and hot beverages.
Nedbank chief economist Nicky Weimar said some upside risks to the inflation outlook also faded over the past month as global disinflation broadly continued.
“We still expect inflation to trend lower during the remainder of this year. However, the disinflation process will remain slow. Inflation will likely be sticky at around 5.2% over the next two months before slowly drifting lower, dipping below 5% in September, and ending the year at 4.8%,” Weimar said.
“We still see upside risks to our forecast, although less so than in March. The rand is a crucial concern. The markets’ favourable assumptions on the outcome of SA's election will be tested next week. Apart from this uncertainty, the currency remains highly sensitive to shifts in global risk appetites, which will likely remain volatile until US disinflation gathers downward traction and the Fed starts its rate-cutting cycle.”
Inflation remained stubbornly high and well above the Sarb’s preferred level of 4.5% of the 3–6% target range.
If consumer prices remain stubbornly high, the Sarb will not taper its monetary policy until inflation is well contained within the midpoint of its target range.
The Sarb has kept interest rates at a 14-year high of 8.25% since May 2023
FNB senior economist Koketso Mano said fuel inflation should lift again following the near 40 cents increase in petrol prices, but the fall in diesel prices means the total magnitude will be muted.
“Ultimately, headline inflation is expected to average above the 4.5% target this year. This means that monetary policy should remain unchanged for most of the year,” Mano said.
“This is further entrenched by expectations that Fed rate cuts will be shallower and later. We currently only see a potential 25 basis points cut at the Sarb’s last meeting for the year.”
Sanisha Packirisamy, an economist at Momentum Investments, said while the April inflation outcome was encouraging, they still expected the Sarb to keep interest rates unchanged at 8.25% in May 2024. “Considering that headline inflation is projected to continue to moderate, and that monetary policy is forward-looking in nature, we still see a possibility that the Sarb may start cutting interest rates in the second half of 2024,” Packirisamy said.
“We have, however, scaled back our expectation from 75 basis points worth of cuts in 2024 to 50 basis points, on persistent upside risks to inflation,”
Meanwhile, Abigail Moyo, a spokesperson of the trade union Uasa said that consecutive decreases in the annual consumer price index is good news for consumers and workers.
“The high cost of essential services and goods remains a huge concern in terms of affordability for consumers and workers with households and families. Although the inflation rate remains above the 4.5% midpoint of the Sarb’s target, we hope the slight decrease recorded in the past two months will positively impact consumers on the MPC repo rate to be announced later this week.
“The ‘new normal’ and the aligned cost of living in a challenged economy make for devastating circumstances many can’t overcome. Hence, we always remind businesses and stakeholders of consumers’ daily hardships as they try to survive. Consumer inflation remains a considerable contributor to financial pressure on consumers plagued by the high cost of living.”
BUSINESS REPORT