Experts say they are cautiously optimistic about a 25 basis point interest rate cut in September. Stats SA is expected to announce the Consumer Price Index (CPI) inflation for July later this week, and experts believe inflation will dip below 5% for the first time since August 2023.

Economists said the rand has been stronger against the US dollar and the expectation is that the US Federal Reserve will cut interest rates at their next meeting in September, just before the South African Reserve Bank meets to make its decision on interest rates.

Johann Els, Old Mutual Group chief economist, said he expects inflation to be around 4.9% or 4.8% when Stats SA makes its announcement this week. “June inflation was 5.1%, and I expect inflation for July to drop even further to around 4.8%. This will be the first time it is below 5% since August 2023.

“For August 2024, which will be announced just before the interest rate announcement in September, I expect inflation to be around 4.6%. If we have two consecutive months of inflation below 5%, I am optimistic that there will be a 25 basis points or 0.25% interest rate cut,” Els said.

He added that underlying inflation is currently even lower than headline inflation.

“Consumer goods inflation is at 3.6%. Inflation, excluding petrol is at 4.7%, so there’s no demand pressure on inflation and no reason why the SA Reserve Bank won’t cut interest rates.

“I actually felt there should have been an interest rate cut in July, and agreed with the two members who voted for a rate cut. I still think the cut will be 25 basis points even though the Federal Reserve will cut US interest rates by 50 basis points.”

Els said that before the Monetary Policy Committee (MPC) meets for the last time this year in November, inflation could be less than 4.5%.

“This will also have given us time to absorb the Fed’s rate cut. We could potentially cut interest rates by 50 basis points in November.

“My prediction is that the US will cut rates by 125 basis points because they have three meetings left this year, and we will cut interest rates by 75 basis points because we have two meetings left,” he said.

Economist Dawie Roodt said inflation will continue to drop, and a 25 basis points interest rate cut will happen in September.

Casey Sprake from Anchor Capital said that this year South Africa’s inflation story had been one of cautious optimism.

“In February, headline inflation touched 5.6% year on year, nearing the upper limit of the South African Reserve Bank’s target range.

“However, it has gradually declined, reaching a moderate 5.1% in June.

While the journey hasn’t been entirely smooth, the overall trend indicates a consistent easing of inflationary pressures,” Sprake said.

Sprake added that inflation is expected to fall further over the remainder of 2024, potentially dropping below 4.5%.

“Naturally, the timing and extent of these anticipated rate cuts depend on the inflation outlook (locally and abroad) and global interest rate developments. At this stage, we expect an initial rate cut of 25 bps in September, followed by a further 50 to 75bp worth of cuts in 2025, and leading into 2026.”

Dick Forslund, from the Alternative Information and Development Centre, said the SARB is usually tracking what the US central bank is doing.

“If they do that again, the SARB will lower the interest rate by 0.25% (25 basis points), because that is what the US Fed is expected to do,” Forslund said.

The Mercury

#mpc

Interest rate cut on cards in September?