All eyes will be on Reserve Bank governor Lesetja Kganyago, who is due to announce the latest interest rate decision on Wednesday.
While economists mainly expect interest rates to remain unchanged, they will pay extra attention to the messaging to ascertain when interest rate cuts may be implemented.
The Bank has left the repo rate unchanged at 8.25% since May 2023 after a cumulative increase of 475 basis points (bps) since the start of the rate-hiking cycle in November 2021.
Nedbank chief economist Nicky Weimar said that Nedbank had shifted its forecast for the first cut in interest rates to July given likely jitters ahead of the May election as well as its expectation that domestic inflation would decline more convincingly in the second half and that the US would start easing its policy rate in June.
“We anticipate a 25bps reduction, followed by cuts of the same margin in September and November,” Weimar said. “Consequently, we see the repo rate at 7.5% and the prime lending rate at 11% by year end.”
FNB chief economist Mamello Matikinca-Ngwenya said FNB also expected the middle of the year to be the turning point “following the most robust hiking campaign that brought interest rates to the highest levels since the global financial crisis period”.
She said the recent commentary from the European Central Bank provided optimism that interest rates could start softening as early as June. However, a cautious note on data dependency remained key, she said.
“Markets are pricing in a US Fed rate cut at around that time, more likely in July, but healthy economic outcomes and easier financial conditions could outweigh the need for a speedy start to a cutting cycle,” Matikinca-Ngwenya said.
Another headache for monetary policy was SA inflation and expectations. Matikinca-Ngwenya said the February inflation print highlighted the traditional lift in inflation in the first quarter of the year as several infrequent survey outcomes become available.
The headline rate, which rose 0.3 percentage points to 5.6% year on year in February, was slightly higher than the Thomson Reuters consensus of 5.5%. Core inflation jumped to 5% year on year from 4.6%.
She said that while the Bank’s monetary policy committee (MPC) would have priced this in, a few risks were unfolding that could adversely affect the disinflation trend. “These include higher food inflation as crop yields are affected by hostile weather conditions, higher selling prices as reflected in the first-quarter 2024 business confidence survey results, as well as the possibility that the rand does not recover as anticipated should interest rates in advanced economies remain sticky and election outcomes be unfavourable.”
Absa, one of SA’s four largest banks, also sees the Reserve Bank keeping the repo rate on hold.
Stats SA will release the quarterly employment statistics for the fourth quarter of 2023 on Tuesday.
The previous release showed formal non-agricultural sectors of the economy added nearly 31,000 jobs, or 0.3%, quarter on quarter, largely reflecting job creation in community services, trade, transport and mining. Jobs were lost in business services, manufacturing, and construction.
Compared with a year ago, more than 250,000 jobs have been created, a 2.6% increase.
Stats SA data shows more than 52,000 jobs were lost relative to the pre-pandemic third-quarter 2019 level. More part-time rather than full-time jobs were created, and average salaries recovered faster than jobs.
Among other data coming out this week is the FNB/BER consumer confidence index for quarter one on Monday.
On Tuesday the Reserve Bank will publish the leading business cycle indicator for January and it will publish private sector credit extension on Thursday. Private credit rose 3.2% year on year in January, the slowest increase since February 2022.
Stats SA will publish producer inflation for February on Thursday.
The SA Revenue Service will publish the trade balance for February on Thursday. The trade balance in January turned into a deficit of R9.4bn, starkly contrasting the upwardly revised surplus of R15.6bn recorded in December 2023. This shift was propelled by a 12.8% monthly decline in exports to R144.3bn and a 2.6% increase in imports to R153.7bn.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.