Bank of America (BofA) has revised its earlier forecast that the Reserve Bank will hike interest rates when its monetary policy committee (MPC) sits for its last meeting of the year next week. It now expects the central bank to start slashing borrowing costs from July.
Tatonga Rusike, a member of the economics team at BofA Global Research, said they now expect the Bank to hold rates steady at the November 23 meeting and throughout the first half of 2024.
“With the Federal Reserve having completed its hiking cycle, the report suggests that the Bank will implement rate cuts starting from July 2024. The forecast indicates a cumulative 50 basis points cut in 2024 and an additional 75 basis points cut in 2025. The policy rate is expected to reach 7.75% by the end of 2024,” Rusike said.
“Easing inflation towards 5% will help the SARB to leave rates unchanged for the next few meetings into 2024 ... they are likely to be cautious on hikes, especially if data is supportive of keeping rates unchanged. The cutting cycle will depend on global interest rates and domestic inflation dynamics. Our house view is that the Fed is done hiking and the cutting cycle will begin from July 2024.”
One of the reasons behind BofA’s revision is the retreat of the oil price from after a spike in early August.
The Automobile Association (AA) said on Wednesday data from the Central Energy Fund indicates fuel prices will decrease significantly in December. Hard-pressed motorists can expect a decrease of around R1.06/l for ULP 95, R1.05/l for ULP 93, and decrease of around R2.10/l for diesel. Illuminating paraffin is also expected to drop, by around and R1.75/l, the consumer organisation said.
Petrol prices account for 3.5% of the consumer price index basket, while diesel prices account for 1.4%.
The MPC held its key repo rate steady at 8.25% in a close call at its September meeting. However, the Bank cautioned that the fight against inflation wasn’t done, given concerns about the continued depreciation of the rand and ongoing inflation pressures.
SA’s interest rates are at a 14-year high, having increased by a cumulative 425 basis points since November 2021 as the central bank confronted runaway inflation.
That has put consumers under immense financial pressure, with SA’s major banks reporting record bad debts, particularly in personal loans and mortgage repayments.
The central bank has held interest rates steady at its last two MPC meetings as inflation edged closer to the 3-6% target range.
Hendrik du Toit, the CEO and founder of SA’s biggest asset manager Ninety One, on Wednesday told Business Day Bank had executed monetary policy excellently and was ahead of the curve on interest rates. That has led to market stability and more stable trading conditions compared with other jurisdictions, he added.
The IMF has warned central banks that monetary policy should remain laser-focused on bringing down inflation.
The challenge for central bankers has been reducing inflation while maintaining growth and stability.
BofA also weighed in on the resignation of Bank deputy governor Kuben Naidoo, whose term was set to lapse at the end in 2025, describing him as having been a top candidate to replace current governor, Lesetja Kganyago, whose term ends in November 2024.
“The first terms of two other deputy governors, Fundi Tshazibana and Rashad Cassim, will expire in July 2024. They are likely to be reappointed for a second time in the coming months.” Rusike said.
“Two new members look likely for 2024 — replacements for Naidoo and Kganyago. However, Kganyago is open to staying for a third term.”
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