Economists expect the South African Reserve Bank’s monetary policy committee to keep borrowing costs unchanged
Economists expect the South African Reserve Bank’s monetary policy committee (MPC) to keep borrowing costs unchanged when it announces its repo rate decision later on Wednesday.
The MPC announcement comes a week after South Africa’s annual inflation rate surprised on the upside, accelerating to 5.6% in February — the highest level in four months.
Ahead of this afternoon’s announcement, Nedbank’s economists said they believe the MPC will hold off on cutting the repo rate until headline inflation makes a convincing descent towards the midpoint of its 3% to 6% target range. “Clearly, headline inflation is not there yet,” they noted.
Investec chief economist Annabel Bishop made a similar prediction, noting that abstaining from a repo rate cut would add to rand strength.
Nedbank’s research note pointed out that most upside risks to inflation have eased somewhat since the MPC’s last meeting in January. The rise in inflation in the first two months of the year does not appear to be the result of a widespread rebound in price pressures, according to the bank’s assessment.
The bank’s economists cited a noticeable moderation in inflation expectations, supported by the Bureau for Economic Research’s survey findings.
According to the bureau, average headline inflation expectations fell by 0.3 percentage points for both 2024 and 2025 in the first quarter of this year.
Nedbank noted that, while global disinflation has largely continued, the upside risk to domestic food prices increased amid warnings of El Niño-related crop damage.
“At the same time, the rand is expected to come under pressure over the next few weeks as the election-related uncertainties start to weigh on risk sentiment,” Nedbank added.
Given the likely election jitters, as well as the view that the US Federal Reserve will only start easing monetary policy in June, Nedbank expects the MPC will initiate rate cuts in July. This is in line with Investec’s view.