Reserve Bank to lower interest rates again, economists forecast
The
The reserve bank, which holds its MPC meetings once every two months, cut the benchmark repurchase rate at which it lends to banks by
This was the fourth reduction in a series of 25 basis point interest rate cuts since September 2024, only interrupted by a pause in March. The decision came after Statistics South Africa data showed
Inflation
'As it stands, we expect a 25 basis point interest rate cut at the upcoming MPC meeting on Thursday, albeit without full conviction,' said Casey Sprake, an economist at Anchor Capital. 'This view is supported by subdued inflation and weak economic growth, with inflation expectations continuing to soften.'
The risks to inflation outlook remain 'broadly balanced', but food prices pose the most significant upside risk over the near term, according to economists at Nedbank, who also predicted a 25 basis point cut in interest rates on Thursday.
Food inflation reached a 15-month high in June, driven mainly by an increase in beef prices, while other unprocessed food items also saw an uptick, including those for fruits, nuts and vegetables, which remained in double-digit territory for a second straight month, according to
With this scenario, 'a low base will amplify the impact of higher international food prices and potential supply disruptions caused by fresh outbreaks of foot-and-mouth disease', Nedbank said in a note.
But 'it is not all doom and gloom'; healthy local and global field crops may offset some of the pressure, alongside a drop in international oil prices, the bank added.
It based its rate cut forecast on subdued inflation, the rand holding up fairly well against the US dollar and the
The reserve bank may also consider the US Federal Reserve's decision, expected a day before, which could influence the rand and investor sentiment
'If the Fed holds as the markets expect, the Sarb may be more hesitant to ease as the rand could come under renewed pressure, especially as the 1 August deadline for the punishing 30% reciprocal tariff looms large in the background,' said Nedbank.
Economists are also keeping an eye on whether
'Sarb governor Kganyago has cautioned against moving too quickly, especially in light of growth risks linked to the imminent imposition of 30% US tariffs on South African
Mail & Guardian.
'The direction of the inflation target, and how it interacts with inflation dynamics into 2025, will remain central to monetary policy decisions going forward.'
Absa Bank also expects a 25 basis point cut, but cautioned that reducing the inflation target could mean interest rates stay higher for longer while the economy re-adjusts to the new target.
'Further risks on the local front remain administered costs including electricity prices and a volatile South African rand should risk sentiment change,' Ricardo Smith, the chief investment officer at Absa Investments, told the
M&G
.
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