Economists expect SARB to cut the repo rate in November

Source: Reuters.

The poll was taken before the African National Congress (ANC) and Democratic Alliance (DA), agreed on Friday, 14 June 2024 to work together in a new government of national unity, a step change after 30 years of ANC rule.

In previous surveys, economists thought rates would be cut sooner, with last month's poll predicting a cut in the third quarter. However, the median forecast in the 6 to 13 June poll suggested the central bank will keep the repo rate unchanged at 8.25% at its July and September meetings and cut in November.

Eight of 20 economists forecast a quarter-point cut in November, seven predicted a 50-basis-point move, two saw a 75-basis-point cut, while three expected no change.

Annabel Bishop, chief economist at Investec, said that while the Monetary Policy Committee (MPC) did not necessarily follow the US Federal Reserve's policy path, it did have some impact.

Impact on emerging markets

The Fed kept rates unchanged last week and pushed out the start of rate cuts for the world's biggest economy to perhaps as late as December. It holds its next meeting on Wednesday, 31 July 2024, with no move expected then.

The Fed's actions tend to affect smaller emerging market nations, such as South Africa, by influencing capital flows in and out of those markets.

Inflation in South Africa is expected to continue moderating in coming months, averaging 5.0% this year, 4.6% next year and 4.5% in 2026. Economists expect the economy to grow 1.0% this year, 1.5% in 2025 and 1.8% in 2026, the same as in last month's poll.

"We continue to expect 1.0% GDP growth this year driven by less severe power outages (shortages) and lower inflation," Gina Schoeman, economist at Citi said in a note.

State power utility Eskom has said it would probably be able to limit rolling power cuts over the winter months as the outlook for its power stations has improved.

While Schoeman noted reforms in the energy sector, she said further improvements were needed in the freight logistics sector that were limiting the economy's growth potential at 2%.