JOHANNESBURG – South African economists are anticipating that the South African Reserve Bank (SARB) will cut its policy rate by 25bps on Thursday to 6.5%.
Economists are expecting the SARB’s Monetary Policy Committee to announce a reduced repo rate for the first time since March 2018.
SARB governor Lesetja Kganyago is set to announce the repo rate on Thursday in Pretoria at 15:00 and media reports suggest that, in line with the consensus SARB will cut its policy rate.
“In our view a cut would be justified for a number of reasons. Inflation remains low and below the SARB’s projections. May CPI stood at 4.5%, a bit higher than April’s 4.4%, but still in the middle of the 3-6% target range,” said TD Securities analyst through FX Street website.
“Since the last MPC meeting on 23 May the rand is 2.5% stronger on a trade-weighted basis, while Brent crude is down 5% in $ terms. And to cap it all, since the last MPC meeting, monetary policy in the US and the Eurozone has moved in a distinctly more dovish direction – TD now expects easing from both the Fed and ECB this year.
“We expect the message from the SARB to be moderately dovish, suggesting another cut remains in the pipeline and could be delivered in September, provided data and financial conditions allow.”
Moreover, Chief Economist Azar Jammine of Econometrix stated that there was speculation the Reserve Bank would cut the benchmark rate.
“Much of the expectation surrounding a rate cut is based on the view that the economy is extremely weak and the inflation rate has declined to the midpoint of the inflation target, creating a favourable environment for contemplating a rate cut,” said Jammine to News24.
“The Reserve Bank’s decision might be seen by some as representing a reversal of a decision to increase the repo rate made in November last year, which […] was largely criticised in the marketplace,” Jammine concluded.
Meanwhile, the repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks and changes in the repo rate affect the prime lending rate, which is the lowest rate at which banks start lending to clients.
Back in May, the Reserve Bank decided to keep the repo rate unchanged at 6.75%, a decision in line with the expectations of analysts. A 25 basis point cut would take the new rate to 6.5%.
