Speculation regarding a potential 25 basis point rate cut by the South African Reserve Bank is rising, supported by stabilized domestic inflation and a stable rand. Despite global uncertainties, key domestic data suggests conditions are favorable for easing. Old Mutual’s chief economist, Johann Els, highlights the balancing act the MPC must navigate between supporting growth and addressing external risks.
As the South African Reserve Bank’s Monetary Policy Committee (MPC) prepares for its upcoming meeting on March 20, 2025, analysts anticipate a possible 25 basis point interest rate cut. This speculation follows the stabilization of domestic inflation and the performance of the rand, despite persistent global uncertainties.
Johann Els, Chief Economist at Old Mutual Group, emphasizes that local economic indicators support a move toward easing monetary policy. He stated, “The Reserve Bank’s January cut was undertaken amid significant warnings about global risks… However, since then, many of these risks have materialized, yet the rand remains as stable as it was in January.”
Recent consumer price index (CPI) data shows that price pressures are contained. Both rental and owner’s equivalent rent inflation have come in below forecasts. Additionally, lower-than-expected increases in electricity prices and a projected reduction in petrol prices have also improved the inflation outlook. Johann noted, “Even though our forecast in January assumed a much higher electricity price increase… actual figures have come in lower than expected.”
The potential interest rate cut occurs amidst fluctuating global economic conditions. The Federal Reserve is anticipated to maintain its current rates during its upcoming meeting, but future cuts are predicted if the US economy continues to decline. According to Johann, “This divergence in policy is already having an impact on the rand… The US dollar has recently weakened… This dollar weakness has helped stabilize the rand, reinforcing our case for a further rate cut.”
Despite the favorable domestic environment, Johann warned that the MPC’s decision will be complex. He suggested, “We expect a split decision again, with the Reserve Bank likely issuing a hawkish statement on global risks… even as the stable rand and softer inflation figures support the move.”
Looking into the future, Johann indicated that while the anticipated cut may represent the last step in the current easing cycle, additional cuts might be necessary if the US economy deteriorates and inflation surprises continue to emerge. He concluded, “There is a real possibility of further rate cuts down the line… if we see a more pronounced weakening in the US economy.” As the MPC meeting approaches, market participants are poised to observe the Reserve Bank’s efforts to balance economic growth support with external risk management. This decision will not only affect borrowing costs but will also shape the trajectory of future monetary policy amid global uncertainties.
In summary, as the MPC meeting approaches, speculation around a 25 basis point rate cut in South Africa is gaining momentum due to stabilized domestic inflation and the stable rand. Despite favorable indicators, the MPC’s decision-making is complicated by global economic uncertainties, particularly concerning the US economy. The upcoming meeting promises to influence both local borrowing costs and broader monetary policy, as stakeholders remain attentive to the Reserve Bank’s balancing act.
Original Source: www.zawya.com
