This week’s focus will be on the SA Reserve Bank’s monetary policy committee (MPC) meeting, which starts on Tuesday and ends with an interest rate decision on Thursday.
It is widely expected the Bank will commence its cutting cycle and reduce interest rates by 25 basis points (bps) to 8% followed by a similar cut in November.
The repo rate was last adjusted in May 2023 when the MPC raised it by 50 bps to 8.25%.
According to the Bureau for Economic Research (BER), there is a chance the Bank could decide to front-load cuts and reduce the repo rate by 50 bps, but this seems to be a less likely scenario.
Nedbank economists Isaac Matshego and Busisiwe Nkonki said they believed the lower inflation trajectory in SA and the start of the cutting cycle in the major economies would prompt the Bank to start cutting rates.
Last week, the European Central Bank lowered its deposit rate by 25 bps to 3.5% after a similar cut in June. This week, the US Federal Reserve will announce its interest rate decision on Wednesday. The latest consumer inflation print in the US showed a further easing in price pressures.
Tracey-Lee Solomon, an economist at the BER, said the inflation print “coupled with last week’s labour data showing a slowdown, has led to markets pricing in as a certainty that the Fed will cut” rates this week.
Markets broadly expect a 25 bps cut, while some remain optimistic about a 50 bps cut.
The Bank of England (BoE) will announce its interest rate decision on Thursday. Unlike their American counterparts, BoE officials are expected to keep interest rates steady after cutting by 25 bps at the start of August, said Solomon.
The MPC will be keeping an eye on the consumer inflation data for August that will be released by Stats SA on Wednesday.
In July, SA’s consumer inflation dipped below 5% for the first time in a year, easing to 4.6% from 5.1% in June. Economists expect the August inflation print to hold at 4.6%, or slow slightly to 4.5%.
FNB economists, who expect inflation to remain at 4.6%, said any remaining municipal increases for utilities and a potential lift in food price pressure would be countered by fuel price deflation given the 15c/l petrol price cut in August.
The MPC said in its July rates decision that SA’s inflation outlook had improved. At the time the Bank forecast inflation to return to the midpoint of its 3%-6% target band in the fourth quarter of 2024. It previously forecast price increases would dip below 4.5% by only the second quarter of 2025.
The BER’s third-quarter inflation expectations survey that was published last week showed analysts, businesses and trade unions expected headline inflation to average 5.1% in 2024, down from 5.3% in the second-quarter survey.
Other expected economic releases this week include the FNB/BER consumer confidence index (CCI), which will be published on Tuesday. FNB economists said the CCI continued to improve in the second quarter, lifting to -12 index points, after improving to -15 points in quarter one, from -17 points at the end of 2023.
“This was the highest reading in 18 months, reflecting a load-shedding reprieve and lower cost-of-living pressures. While the survey was conducted after the national elections, it was before the government of national unity (GNU) was formed and was likely still hindered by political uncertainty to some degree,” said FNB.
Ultimately, the reading still suggested broad pessimism, highlighting that while consumers perceive their financial outlook as more positive, they remain concerned about the overall performance of the economy, which will hinder their willingness to purchase durable goods, the bank said.
Stats SA will publish July’s retail sales data on Wednesday. The year-on-year growth in retail sales accelerated to 4.1% in June. Economists expect another, albeit slower, increase for July.
Growth was expected to be supported mainly by the moderation in food prices and base effects.
“However, conditions in the retail sector remain generally subdued, contained by higher debt service costs,” said Matshego and Nkonki.
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