Experts have advised there will be some good news for consumers in January with another 25 basis points (bps) interest rate cut forecast.
They said it was expected that the SA Reserve Bank (SARB) will continue to follow a conservative approach in its monetary policy.
This follows November inflation being at 2.9%, slightly higher than the 2.8% recorded in October, as released by Stats SA this week. However this is still below the SARB target of 3-6%.
Neil Roets, CEO of Debt Rescue, said the recent inflation figure of 2.9%, which falls below the Reserve Bank’s target range, naturally raised questions about the likelihood of an interest rate cut.
“While the lower inflation rate creates room for the SARB to reduce rates, Governor Lesetja Kganyago’s recent remarks in the media emphasise the cautious and forward-looking approach the Bank is taking. Based on this, a rate cut in January is likely, but we would not expect it to exceed the recent trend of 25 basis points at this point in time.”
Roets added that it was important to manage expectations. “The Reserve Bank has been clear that its policy decisions are not based solely on past data but also on projections and uncertainties, such as the weakened rand and global economic shifts. While a rate cut of more than 0.25% would offer greater relief, the SARB’s historically conservative stance makes such a move unlikely.”
Waldo Krugell, an economics professor at North-West University (NWU), said the fact that inflation remained low was promising for the prospect of another interest rate cut at the end of January.
“This is supported by the latest inflation expectations data. Expectations for next year are now at the mid-point of the target range. Looking at forward rate agreements, the market is expecting three 25 basis point cuts next year.”
Krugell added that the SARB is conservative and unlikely to cut by more than 25 bps at a time. “It is particularly international uncertainties that inform this cautious approach.”
Professor Raymond Parsons, from North West University Business School, said good news was coming on the inflation front.
“It confirms that average inflation in 2025 as a whole is likely to converge on the desired mid-point of 4.5% of the SARB’s 3-6% target range. SA’s reduced growth projections for 2024 and 2025 as a result of the poor 3Q 2024 GDP reinforce the need for further lowering borrowing costs.”
Parsons added that the SARB’s Quarterly Projection Model (QPM) has already pencilled in the possibility of three cuts of 25 basis points next year.
“The Monetary Policy Committee is likely to adhere to its conservative approach of 25 bps cuts at a time, reinforced for now by the global concerns and uncertainties that have arisen about the wider economic impact of intended foreign and tariff policies by US President-elect Donald Trump.”
Professor Bonke Dumisa, an independent economic analyst, said the bigger picture is that the inflation rate is firmly under control, for it to remain below the 3-6% target inflation rate range for two successive months.
“This is worth being excited about. However, the recent remarks by the South African Reserve Bank Lesetja Kganyago that 'they did not reduce the Repo Rate by over 25 basis points in November because they did not want to do something they would regret' simply tell us that even in January 2025 we must not expect the South African Reserve Bank to cut the Repo Rate by anything above 25 basis points because our ultra-cautious SARB does not want to do something they will later regret”.