SARB Govenor Lesetja Kganyago. Picture: Oupa Mokoena/ Independent Newspapers.
The worries of January may spill into the next month as it has been widely expected that the South African Reserve Bank (SARB) will make no changes to the current interest rate in the country.
On Thursday, the SARB governor, Lesetja Kganyago, will announce the Monetary Policy Committee’s (MPC) decision on changes to the repurchase rate (repo rate) in the country.
Currently, the repo rate is at 8.25%, with the prime lending rate at 11.75%.
Frank Blackmore, Lead economist at KPMG told Business Report that while inflation had seen a reduction, we could only see a reduction in interest rates later in the year.
Blackmore said, “Although inflation has seen a reduction from the highs of July in 2022 to the current level of 5.5% in November of last year (2023), we do expect that trend to continue further through 2024. The reality is, there is still a lot of inflation or cost pressure within the economy.”
“We know for instance, the latest values for food for are around 9%, but are expected to come down over the course of the year - and of course things like electricity remain high at 15.2%, putting pressure on household and utilities. We also know that fuel is a volatile measure and in fact caused an increase in inflation from the lows that we experienced in July of 2023 of 4.7% to the current levels of 5.5% and further changes because of political geopolitical events, or whatever it is will be felt in our inflation,” Blackmore further said.
“Therefore, the expectation for the Monetary Policy Committee (MPC) meeting is to maintain current levels of interest rates well into the year before we see any decreases in those rates. An additional factor in this regard will also be when international trading partners, such as the US and Europe, start decreasing their rates - because for us to prematurely start reducing our interest rates, there would basically be a knock-on-effect on the exchange rate as well as inflation further down the line. As such, the expectation is for no interest rate reductions perhaps in the first half of this year although this will be data dependent and dependent on what international shocks could influence inflation directly,” Blackmore further said.
Nedbank Group’s economic unit has also predicted that rates will remain unchanged.
In a statement on Friday, the unit said, “We believe the MPC will leave interest rates unchanged at next week's meeting. Although headline inflation remains above the SARB's preferred target of 4.5%, it not only eased somewhat in November, but the upward pressure was mostly confined to food inflation, resulting from temporary supply shocks and the usual seasonal effects. Underlying price pressures measured by core inflation was 4.5%, holding relatively steady at the SARB's target for the third consecutive month. More importantly, we still expect a gradual disinflationary trend in 2024, with headline inflation sticky above 5% for much of the year, before dipping more convincingly towards 4.5% from September onwards. The downward force is likely to come from fading global price pressures and weaker domestic demand, but the risk to our forecast remains tilted to the upside.”
BUSINESS REPORT