The South African Reserve Bank (SARB) has delivered hope that the cost of borrowing could soon be eased for financially constrained consumers as it remained bullish that consumer inflation will slow towards the midpoint of its 3–6% target range earlier than expected.
SARB Governor Lesetja Kganyago yesterday said the bank was now seeing inflation – which is currently at 5.3% – stabilising at its 4.5% objective in the second quarter of next year.
This is an improvement on the SARB’s forecast made in March, which only reached this milestone at the end of 2025.
The inflation projection for this year was left unchanged at 5.1%, but Kganyago said the changes to the outlook were not large when compared to the March forecast.
“Average inflation for 2025 is only a tenth of a percentage point lower. The task of achieving our inflation objective is not yet done,” Kganyago said.
“The change in our inflation forecast mostly reflects recent data outcomes, with the CPI releases for March and April turning out slightly better than expected.”
Kganyago said the SARB had revised down its 2024 food and core forecasts marginally, but fuel price inflation was now expected to be higher, in the near-term, albeit improving for 2025.
He said this would help the SARB forecast get to the target midpoint sooner.
“Nonetheless, the committee remains concerned that inflation expectations are elevated,” Kganyago said.
“After three years of inflation being above 4.5%, few survey respondents, especially from businesses and trade unions, now believe that inflation will be at 4.5% in two years’ time.”
However, the SARB’s monetary policy committee (MPC) unanimously decided to keep its key repo rate at 8.25% as widely expected yesterday, marking the sixth consecutive meeting at 14-year highs.
Anchor Capital investment analyst Casey Sprake said that at the current level of rates, the policy stance was considered restrictive, consistent with the inflation outlook and the need to address elevated inflation expectations.
Sprake maintained that the SARB’s MPC will not rush to cut the repo rate.
“Any possible interest rate cuts will likely only materialise towards the end of 2024 and depend on the inflation outlook (locally and abroad) and global interest rate developments as we progress further into this year.
“Current market sentiment suggests only one interest rate cut of 25 basis points this year in SA, possibly two, with the second cut almost fully priced out per our expectations. Over the longer term, we expect the SARB to gradually cut rates from 8.25% to 7.5% through three 0.25% cuts, reflecting the theme of higher interest rates globally.”
Meanwhile, the SARB maintained its economic growth forecast of 1.2% this year, as well as for 2025 and 2026.
Kganyago said economic activity indicators for the first quarter of 2024 have been coming in worse than expected despite reduced electricity load shedding, but this will be offset by better second-quarter growth.
North-West University Business School economist, Professor Raymond Parsons, said the MPC also emphasised that a positive factor in the growth outlook would be if the current progress in suspending load shedding was sustained for the rest of the year.
“It emphasises the extent to which South Africa’s investment and growth prospects hinge on a sustainable solution to its energy crisis,” Parsons said.
“A dominant theme in the MPC statement was ‘unusually elevated uncertainty’ in assessing the economic outlook, including political uncertainty in South Africa and trends in the country risk premium.”
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