Reserve Bank could cut repo rate on Thursday, but will it decide to?

The Citizen

28-05-2025

Although economists already said in March that they do not expect the repo rate will be cut, inflation is lower than they thought.
While some economists believe that the South African Reserve Bank (Sarb) has room to cut the repo rate on Thursday, 29 May, the question remains whether the central bank will cut interest rates.
Frank Blackmore, lead economist at KPMG, says there is a difference between what he thinks the Monetary Policy Committee (MPC) of the Sarb will do and what he believes it should do.
'The MPC has made it clear that its decisions are data-dependent, relying on current inflation readings as well as future inflation expectations. The latest inflation rate of 2.8% is well below the midpoint of its target of 4.5% and even below the lower level of the 3% to 6% inflation target range.
'This suggests that inflation expectations for 2025 remain muted, which would typically support a further repo rate cut of potentially by 25 basis points tomorrow.'
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Market volatility subsided, but uncertainty remains – KPMG economist
He points out that much of the recent market volatility, driven by uncertainty around tariffs imposed by the US administration, has also subsided. 'Markets have generally returned to levels seen before the tariff announcements earlier in the year.
'However, meanwhile the South African economy is struggling to grow. Initial optimistic forecasts of just under 2% have been revised down to around 1%. In this context, any policy support, such as a repo rate cut, would be welcome.
'But the uncertainty surrounding US tariffs has merely been deferred, allowing time for negotiations with various trading partners. As with the March MPC meeting, we may see another decision to hold rates steady until there is greater clarity regarding the outcome of trade negotiations, tariffs and potential retaliatory measures globally and for South Africa.'
Therefore, he says, although the inflationary backdrop is favourable for a reduction in the repo rate, downside risks remain. 'These risks may justify maintaining the current monetary policy stance until trade and geopolitical uncertainties ease or become more predictable. I therefore lean 60:40 in favour of the MPC holding rates in May.'
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More favourable inflation outlook creates scope for more rate cuts – Absa economist
Miyelani Maluleke, senior economist at Absa, said during a discussion on Absa's quarterly perspectives that the more favourable inflation outlook creates scope for more repo rate cuts. 'Since the start of its easing cycle in September last year, the MPC consistently struck a cautious tone, expressing concern about elevated uncertainty.
'After delivering a cumulative 75 basis point easing, the MPC decided in a 4:2 vote split to keep the repo rate unchanged in March. In our view, developments since the last MPC meeting created more scope for easing the repo rate.
'The inflation outlook has improved, while evidence points to disappointing growth momentum in the first quarter. There is no doubt that uncertainty remains elevated amid the ongoing big global policy shifts.
'However, we view these uncertainties as being more relevant for the timing of the rate cuts rather than arguing for the rate cuts themselves. As a baseline, we have pencilled in a 25 basis points repo rate cut for May, to be followed by another 25 basis points in July.
ALSO READ: Reserve Bank cuts repo rate but no promises for rest of 2025
Expect a 25 basis points repo rate cut – Bank of America economist
Tatonga Rusike, Sub-Saharan Africa economist at Bank of America, says according to the bank's South African Financial Conditions Indicator, the monetary policy stance largely stayed in neutral territory after the global financial crisis, turned accommodative during Covid and turned tight since 2023.
'We think the monetary policy remains tight because the Sarb's repo rate cuts have been slower than inflation deceleration. Indeed, inflation is below target while the Sarb policy rate is still to get to neutral level. We expect that the Sarb will cut the repo rate twice in 2025, taking the repo rate to 7%.'
ALSO READ: Caution wins the day as Reserve Bank decides against repo rate cut
Repo rate will remain unchanged – FNB economist
Koketso Mano, senior economist at FNB, also says the weak economic environment will weigh on pricing power and sustain space for easier monetary policy and a cut in the repo rate. 'However, a turbulent global environment and risk aversion, especially with local fiscal slippage, will likely keep the Sarb cautious.
'We predict that the repo rate will remain unchanged at the May meeting, but apart from a wait-and-see approach that caters for global uncertainties, there is ample space for the MPC to continue cutting interest rates.'
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MPC will cut repo rate by 25 basis points – Anchor economist
Casey Sprake, economist at fund manager Anchor, says from a macroeconomic perspective, the latest inflation data strengthens the case for a cut in the repo rate. 'With core inflation easing, wage growth muted, and consumer demand soft, real interest rates remain in restrictive territory.
'This means that current monetary policy is still exerting a significant dampening effect on the economy. As such, we expect the Sarb to cut the repo rate by 25 basis points at its upcoming MPC meeting.
'The likelihood of a third rate cut later in 2025 remains evenly balanced at this stage, depending on a volatile mix of domestic and international factors, including global commodity prices, currency movements and geopolitical risks.'
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Economist: Repo rate cut likely, but…
Sanisha Packirisamy, chief economist at Momentum Investments, says with inflation remaining subdued at the start of the second quarter and signs of a softer inflation outlook due to lower oil prices, a stable currency, weaker economic growth and the scrapping of a Vat hike which triggered Budget 3.0, the Sarb is likely to revise its annual inflation forecast down from 3.6% for 2025.
'The median consensus inflation expectation by Reuters has fallen from 4.1% for 2025 at the start of the year to 3.7% in the April survey. A softer inflation outlook points to an increased likelihood of a repo rate cut tomorrow.
'While the bias is for another repo rate cut thereafter, we note that the MPC will likely maintain a cautious approach to cut the repo rate too far below the neutral level given ongoing global and local risks.'
She says with a less pronounced demand shock, the imported deflation from China to South Africa will likely be less. 'The forward-rate agreement curve on 21 May fully priced in one 25 basis point rate cut by year-end, but not in the May meeting.
'This represents a scaling back of expectations from two cuts priced in at the end of April, likely reflecting shifting expectations for US monetary policy, as recession fears eased.'
ALSO READ: What lowering the inflation target will mean for SA
Repo rate decrease below neutral level of 7.25%?
However, she says, a decrease in the repo rate significantly below the Sarb's estimated neutral level of 7.25% would likely require a global recession. 'The recent de-escalation in US-China trade tensions reduces the likelihood of such a scenario and, in turn, the likelihood of the Sarb cutting the repo rate far below neutral, in our view.
'Global fund managers' expectations for a so-called hard landing in the next 12 months pulled back to 26% in Bank of America Merrill Lynch's Fund Manager Survey in May from 49% in April 2025. In addition, the comment from the deputy finance minister that an announcement on the inflation target will be made 'soon' limits the scope for further interest rate cuts.'