The South African Reserve Bank (SARB) is expected to leave its repo rate unchanged at 8.25% on November 23, a Reuters poll showed. The decision reflects policymakers’ efforts to find a balance between inflation risks and the timing of global rate cuts.

All 20 economists surveyed over the past four days predicted the central bank would maintain its current rate stance next week. South Africa’s central bank left its main interest rate unchanged in September, even though inflation has fallen into its 3-6% target range, citing concerns that deteriorating public finances could exacerbate price pressures.

According to the median forecast of a sample of 13 economists, the South African central bank is expected to leave policy unchanged in January and March 2024 before cutting rates by 25 basis points to 8% in May. Previous polls had forecast a rate cut in the first quarter of 2024.

South African Reserve Bank likely to keep rates steady through May

However, there is no clear consensus on the exact timing of the May cut, with five economists predicting a 25 basis point cut, two expecting a 50 basis point cut and six predicting no change.

In response to an additional question, eight of the ten economists said the bigger risk to the timing of the RBA’s first rate cut is that it will come later rather than earlier than expected.

The forecasts come amid speculation that the Fed could slow or even stop raising rates as the U.S. economy shows signs of cooling inflation. Traders are betting this week that news of slowing U.S. inflation could lead the Fed to pause rate hikes or even start cutting rates in May.

Elize Krueger, an independent economist, warned that South Africa’s central bank could be cautious about the timing of monetary policy easing in the country, especially with global interest rate expectations pointing to a higher long-term interest rate environment.

“I don’t expect the stance to change next week. Better-than-expected U.S. Consumer Price Index and Producer Price Index data will certainly support my view that our local interest rates have reached a stable level, as well as lower oil prices, a stronger rand and the possibility of a sharp drop in fuel prices in early December,” she said.

Another Reuters poll earlier this month showed that emerging market currencies are not expected to rise sharply against the dollar until next year, despite a growing belief that the interest rate cycle has peaked.

The Reuters poll showed that South Africa could cut rates by another 25 basis points to 7.75 percent in July or September next year, followed by another 25 basis points in November. Another 25 basis point cut is expected in early 2025, bringing the repo rate down to 7 percent by the end of the year.

Median inflation is expected to slow to 4.9% next year and 4.6% the year after that, up 0.1 percentage points in both years compared with last month’s survey. This year’s inflation rate is forecast at 5.8%.

Median economic growth is forecast to reach 1.3 percent next year, 0.1 percentage point higher than in last month’s survey and above this year’s estimate of 0.7 percent. Power shortages have hampered business activity in South Africa.

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