Economists are increasingly optimistic about the potential for a repo rate cut in the upcoming Monetary Policy Committee (MPC) meeting in September. With inflation slowing down to 4.6%, slightly above the South African Reserve Bank’s (SARB) target of 4.5%, the outlook for interest rates has shifted. The current repo rate remains at 8.25%, a 15-year high, following the SARB’s decision in July to maintain the rate. However, predictions now lean toward a cautious reduction in September, starting with a 25 basis point cut.
Read: SA Reserve Bank maintains repo rate at 15-year high, Economists weigh in
Economists predict potential for repo rate cut
Economists are closely monitoring inflation trends, with many seeing room for the SARB to begin reducing rates. At the July meeting, the SARB maintained a restrictive monetary policy to stabilize inflation, despite two of the five members of the MPC advocating for a 25 basis point cut. Lead Economist at KPMG South Africa, Frank Blackmore, expressed confidence that the MPC could implement a rate reduction this month, citing the long-term decline in inflation as a key factor.
“The recent reductions in the CPI headline inflation number to the current 4.6% will allow the MPC room in September to reduce interest rates,” Blackmore noted. He highlighted how inflation has steadily declined from its peak of 7.7% in July 2022, creating space for monetary easing.
Cautious rate reductions expected from SARB
Blackmore cautioned, however, that the initial rate cuts would likely be conservative. “Initially, the reduction in interest rates will be conservative at 25 basis points but can be followed by a 50 basis point reduction in November if this trend and moderate inflation continues,” he said. Economists, including Blackmore, expect the SARB to maintain a cautious approach, prioritizing stability and inflation control as global economic uncertainties persist.
While the possibility of a rate cut is becoming more realistic, the SARB will need to assess inflation risks before committing to further reductions. The central bank’s firm stance on keeping inflation within target will play a critical role in shaping the country’s interest rate path over the coming months.
