Interest rate relief coming soon for SA – Alexforbes
J– South Africans can expect interest rates to be cut in the coming months as inflation gradually nears the midpoint of the Reserve Bank’s three to six per cent target range.
This is feedback from Chief Economist Mpho Molopyane, who explained the financial services firm’s outlook for the rest of 2023 in its 2023 Alexforbes Manager Watch Annual Survey.
The Alexforbes survey of retirement fund investment managers showcases the performance of institutional fund managers in South Africa.
It has tracked the retirement fund investment management industry since the dawn of the country’s democracy and provides a key reference point to all South African retirement funding industry stakeholders.
As part of the report, Molopyane outlined Alexforbes’ economic outlook for South Africa.
She said the country’s economic recovery from the Covid-19 pandemic has lost steam due to the continued inconsistent electricity supply and weak consumer and business confidence.
However, Alexforbes expects the economy’s performance to improve slightly throughout 2024, on the back of reduced load-shedding and increased self-generation capacity.
Furthermore, declining inflation means that the Reserve Bank is likely to cut rates in the second half of the year, possibly beginning in July.
Headline
Molopyane said the inflation picture had evolved positively as headline inflation began to edge back to the Reserve Bank’s target range as food and energy price growth moderated.
Headline inflation bottomed at 4.7 per cent in July 2023, and rose to 5.9 per cent in October, as favourable fuel and food base effects waned and conflict in the Middle East lifted oil prices.
Since then, headline inflation has resumed its decent, reaching 5.1 per cen in December 2023. Alexforbes expects this decline to be sustained despite some volatility.
It estimates that inflation will decline from 5.9 per cent in 2023 to 4.9 per cent in 2024, and 4.5 per cent in 2025. The company also expects overall food inflation to ease, driven partly by moderation in meat and bread and cereal inflation.
Unchanged
Regarding monetary policy, Alexforbes expects the Reserve Bank to keep the policy rate unchanged throughout the first half of 2024 as it remains concerned about upward risks to the inflation outlook.
Despite the Reserve Bank’s hawkish posture, Alexforbes believes the expected decline in inflation will give it room to cut the repo rate by 75 basis points in the second half of the year and a further 50 basis points in 2025.
The financial services company expects inflation expectations to start declining in tandem with the downward trajectory in headline inflation. This will strengthen the case for monetary policy easing.