South Africa’s Reserve Bank Poised To Cut Rates To 7.50% On Jan 30 – Reuters Poll Forecasts

The South African Reserve Bank (SARB) is anticipated to reduce its repo rate by 25 basis points to 7.50% at its next monetary policy meeting on January 30, 2025. This move is part of a gradual easing cycle, with further rate cuts projected for March and the third quarter. The decision comes amid a challenging global environment and ongoing domestic economic recovery efforts.

Interest Rate Projections

A Reuters poll of 19 economists unanimously predicted the SARB would lower its repo rate to 7.50% this month. A slim majority expects an additional 25 basis point cut in March to 7.25%. However, forecasts indicate the final cut of this cycle, bringing the rate to 7.00%, will be delayed until the third quarter.

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In contrast, a December poll suggested this third rate cut might occur in May. The delay is attributed to uncertainties surrounding U.S. economic policies and their potential global impact.

Global Factors at Play

The policies of U.S. President Donald Trump’s administration, including proposed tariffs on the European Union and punitive duties on Chinese imports, have created inflationary pressures globally. This has influenced the Federal Reserve to adopt a cautious approach to rate adjustments, which in turn affects SARB’s decisions.

Johannes Khosa, an economist at Nedbank Group Economic Unit, stated:

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“We believe Trump’s policies, if implemented, will be inflationary. This will cause inflation to be sticky and force the U.S. Fed to reduce rates slower or even stop cutting. The SARB will have to follow suit.”

Domestic Economic Indicators

South Africa’s inflation rose to 3.0% year-on-year in December, still within the SARB’s comfort range of 3%-6%. The Reuters poll projects inflation to average 4.1% in 2025 and rise to 4.5% in 2026.

Economic growth is forecasted at 1.7% for 2025, with a slight improvement to 1.9% in 2026. Analysts highlight the gradual resolution of challenges like load-shedding and logistics constraints, as well as a potential rebound in the agriculture sector, which contracted in Q3 2024.

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David Omojomolo, an Africa analyst at Capital Economics, expressed optimism:

“The effects of load-shedding and logistics constraints should continue to fade, while the agriculture sector should soon rebound.”

Capital Economics, among the most bullish, forecasts a growth rate of 2.3% for South Africa in 2025.

SARB’s Monetary Policy

The South African rand has shown volatility, weakening after Trump’s recent policy announcements. The SARB aims to maintain its interest rate differential with the U.S. to manage exchange rate stability. A cautious approach to further rate cuts is expected as SARB monitors inflation and global economic trends.

Key Takeaways

1. Rate Cut Path: The SARB is likely to cut the repo rate to 7.50% in January, followed by 7.25% in March, with a final cut to 7.00% delayed until Q3 2025.
2. Inflation Control: Inflation remains within SARB’s target range but is expected to rise gradually, influencing monetary policy.
3. Economic Recovery: Load-shedding relief and an agricultural rebound are expected to support GDP growth, forecasted at 1.7%-2.3% this year.
4. Global Pressures: U.S. policy shifts under Trump and inflation concerns are key factors shaping SARB’s cautious stance.

The SARB’s gradual easing approach balances domestic economic recovery with the need to navigate complex global conditions, ensuring stability in South Africa’s monetary landscape.

SOURCE – LINK

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