ECONOMIC WEEK AHEAD: Reserve Bank’s rate call will grab attention

It is another busy week on the economic calendar, dominated by the Reserve Bank’s monetary policy committee (MPC) decision on interest rates on Thursday, preceded by key inflation data and the Bureau for Economic Research’s (BER) latest inflation expectations survey.

Inflation expectations in focus

To start the week the BER will release its inflation expectations survey for the third quarter on Monday, the first since the Bank announced its preference for a 3% inflation target rather than the 4.5% midpoint.

“While inflation expectations were drifting lower ahead of this announcement, market participants will be keen to see if the downtick persisted in the third quarter. Especially in the face of higher actual inflation,” said BER economist Tracey-Lee Solomon.

Citibank MD and head of CEEMEA Economics Gina Schoeman noted the survey would be “closely watched, given a trend of lower expectations will be a necessary precondition for the [central bank] to start another cutting cycle in response to its lower 3% preferred target”.

She expected one-year expectations to fall to about 4% or 4.1% and two-year expectations to about 4.2% or 4.3%, “however, the split between analysts, businesses and unions will be key”.

CPI figures due

Consumer inflation data for August will follow on Wednesday. Solomon said the rate was expected to have been “stable at 3.5% in August, remaining just above the [Bank’s] preferred 3%”, though some municipal tariff increases could still filter through.

Investec economist Lara Hodes projected the consumer price index (CPI) at 3.8% year on year. “We could, however, see continued upside pressure from the food and beverages category. Global food prices rose by 4.5% month on month in August ... while the rand appreciated marginally.”

Schoeman expects a rise to 3.6% year on year, driven mostly by food and some residual tariff effects. “Importantly for municipal rates is that the spillover is limited to only water/sewerage for one municipality and assessment rates for five municipalities. Our sample of the major metros (over 80% of Stats SA’s municipality sample) suggests very limited impact in August.”

Rate call in the spotlight

Attention will then shift to Thursday’s MPC decision. “While some argue there is scope for a cut ... we see rates remain[ing] on hold,” Solomon said. While the Bank “is likely to tolerate the above 3% inflation over the near term, it will, in our opinion, keep rates on hold until it can more firmly and confidently pin its forecasts around 3%”.

Hodes expects the Bank to cut by 25 basis points (bps), but said there is “a chance that the cut could be pushed to November’s MPC meeting”.

Schoeman, however, sees no change this month. “We forecast an unchanged repo rate at 7%. Though the discussion of a potential rate cut remains, we see the MPC keeping rates marginally restrictive to ensure the preferred 3% target is reached as soon as possible. This is especially true as it waits for an official target change, which we believe only occurs in early 2026.”

Retail and trade signals

Retail sales data for July will be published midweek. Hodes projects growth of 2.6% year on year, saying consumers “have benefited from monetary easing ... however, they still remain somewhat subdued in a low economic growth environment”.

Wholesale and motor trade sales will follow on Thursday. “This will offer the first indications of how the trade sector has fared so far in the third quarter after the sector contributed positively to GDP in the second quarter,” Solomon said.

Internationally, the Federal Reserve will meet on Wednesday, with markets pricing in an 80% chance of a 25bps cut following weaker jobs data. This outcome will be closely watched for its implications on tariffs, inflation and global market conditions.

marxj@businesslive.co.za