LIVE | Interest rate cut expected as inflation stabilises
Lesetja Kganyago, governor of the South African Reserve Bank.
Image: SARB | Facebook
Ahead of today’s interest rate announcement, the good news is that economists broadly expect an interest rate cut.
Investec chief economist, Annabel Bishop, said yesterday, based on interest rates that came in slightly higher for October than the previous month, that there was a good chance of rates being cut.
The Consumer Price Index, released yesterday, showed that October’s inflation rate came out at 3.6%.
This was an increase from the September year-on-year rate of 3.4%.
A Reuters poll conducted ahead of the Statistics South Africa data released showed expectations of 3.7%.
Bishop said that markets had factored in an 88% possibility of a cut of 0.25 percentage points.
Should interest rates be cut by an anticipated 0.25 percentage points, homeowners owning a R2 million house with a 20-year mortgage period save an additional R300 a month, BetterBond’s data showed.
This will, if that saving is plugged back into the bond, cut the term by 42 months – three-and-a-half years.
However, Bishop noted that SARB has highlighted the need for high real interest rates to subdue inflation to 3% year-on-year.
Andre Botha, head of execution at TreasuryONE, tells IOL that, “with inflation anchored near the midpoint of the target range, SARB maintains space to cut rates, provided global conditions don’t deteriorate”.
Finance Minister Enoch Godongwana said, during last Wednesday’s tabling of the mini budget, that the inflation target had been moved to 3%.
This is instead of the 3% to 6% framework that had been in place for 25 years.
While it comes in with immediate effect, the actual implementation of the new policy will be phased in.
Botha noted that the “slightly softer-than-expected CPI supports the case for a cautious rate cut”.
Yet, SARB’s tone will lean towards controlling inflation, which is typically done through hiking rates, said Botha.
This is due to oil risks, currency volatility, and global rate uncertainty, said Botha.
The Governor of the South African Reserve Bank (SARB), Lesetja Kganyago, will make the announcement at 3pm this afternoon.
This follows two days of meetings by the SARB’s Monetary Policy Committee.
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