The Reserve Bank’s monetary policy committee (MPC) will deliver its final interest rate decision for the year on Thursday, amid growing speculation that it may cut rates by 25 basis points (bps).
This signals the beginning of policy fine-tuning around the newly affirmed 3% inflation target, which includes a tolerance band of one percentage point on either side.
Nedbank economists expect a cut but noted it’s “a difficult meeting to call, and market opinion is divided between a hold and a cut”.
Bureau for Economic Research chief economist Lisette IJssel de Schepper agreed that a cut was likely. Before the medium-term budget policy statement, “we anticipated that while there would be a split vote among MPC members, the majority would tilt towards keeping rates on hold.
“Following the firm target announcement by the National Treasury and expected revisions to the Reserve Bank’s near-term rand and oil price forecast, we think the majority will now vote in favour of a cut.”
She added it was possible a 50bps cut could be discussed “though not implemented”.
However, a November cut was unlikely to mark the start of a cutting cycle, with the Reserve Bank remaining data dependent. It “is likely to keep a close eye on inflation expectations, its CPI forecast, and will fine-tune policy as risks emerge and subside”, IJssel de Schepper said.
Investec economist Lara Hodes remained more cautious, noting that while price pressures were contained, the Bank’s tone in September was not overtly dovish.
“Expectations are for a 25bps cut in the repo rate … However, the central bank may opt to leave rates on hold once again with its tone less dovish at its last meeting in September,” Hodes said.
“In addition, expectations that the US will cut rates at its next [federal open market committee] meeting have eased considerably, with only a 49.7% probability currently.”
While the Reserve Bank doesn’t mirror the Fed, it keeps a close eye on its signals.
Ahead of the MPC meeting, October consumer inflation numbers will be released on Wednesday, and, according to Nedbank, they are unlikely to make the committee’s job any easier.
Hodes noted October was a low survey month. She forecast a 3.5% year-on-year rise, unchanged month on month, with food inflation likely to be still well contained.
Nedbank expects a rise to 3.8%, saying “this increase primarily reflects a slower drop in fuel costs and elevated food prices”.
Both projections remain comfortably within the Reserve Bank’s inflation target, now explicitly centred on 3%.
Also due this week are retail, wholesale and motor trade sales data for September, which will firm up third-quarter GDP estimates.
Nedbank expects retail sales to grow 3% year on year, up from 2.3% in August, supported by soft inflation and improving real incomes. Hodes sees a slightly lower figure of 2.6% year on year.
SA will host the B20 summit, the official business forum of the G20. Held under the banner “Inclusive Growth and Prosperity through Global Co-operation”, the summit will bring together business leaders from across the G20 to engage political counterparts ahead of the G20 leaders summit at the weekend.
The B20 task forces have already submitted their final policy recommendations, focusing on trade, digital transformation and sustainable development. The summit now shifts to high-level dialogue, with SA using the platform to elevate African and Global South priorities within global economic governance.
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