Rate cut will aid struggling consumers
South Africans may this week see the first interest-rate cut in a year, which will provide much-needed relief for consumers in an economy struggling to grow. The Reserve Bank’s monetary policy committee will announce its decision on interest rates on Thursday.
South Africans may this week see the first interest-rate cut in a year, which will provide muchneeded relief for consumers in an economy struggling to grow.
The Reserve Bank’s monetary policy committee (MPC) will announce its decision on interest rates on Thursday. Of the 16 economists Bloomberg polled, 12 expect a rate cut of 25 basis points, two expect one of 50 basis points and two expect the Bank to keep rates unchanged.
This will sit well with consumers hit by tax and fuelprice rises, and be a reversal of the November 2018 repo-rate hike. In June, the Bank signalled willingness to drop rates, saying inflation outcomes in the past 10 months mean policy was not as accommodative as it could have been. A range of inflation dynamics, including food prices, weak demand in the economy and moderating wage growth, had eased inflation, it said.
“The MPC will find it difficult to justify not cutting interest rates at their July meeting, which comes just after the disappointing first-quarter growth number and low inflation prints,” said Nedbank economist Busisiwe Radebe.
Recent inflation updates and expectations show inflation at or near the mid-point of the 3%6% target range while growth remains weak with the economy having contracted in the first quarter of the year.
With most central banks now signalling an easing of monetary policy, the Bank is likely to follow suit.
“The dovish tilt by global central banks, most notably the US Federal Reserve, has given the Bank some breathing room and has thus made the prospect of a rate cut more probable under current market conditions,” Novare economic strategist Tumisho Grater said.
At its last meeting, in May, the MPC adopted a more dovish tone than in prior meetings in 2019 and narrowly decided to keep the repo rate unchanged at 6.75%, with two of the five members voting for a 25-basispoint cut.
On Wednesday, Statistics SA will release retail sales figures for May, which will shed light on economic performance in the second quarter of the year. The Bloomberg consensus is that sales growth will slow to 1.7% year on year in May from 2.4% in April. Based on survey evidence, the sector will not have a meaningful rebound in the second quarter of the year.
The Bureau of Economic Research retail survey showed that the majority of respondents were dissatisfied with business conditions amid “tough trading conditions”.
“Pressure on consumers’ discretionary income, via weaker labour markets and higher income taxes, is expected to keep shopping activity relatively muted this year,” said FNB economist Siphamandla Mkhwanazi.
“However, the increasing unsecured credit uptake, mainly by higher-income consumers, as well as our expectation of a cut in interest rates in July, could provide auxiliary support to retail sales volumes in the coming months,” she said.