The South African Reserve Bank (SARB) is expected to keep the repo rate unchanged at 8.25% this week, as headline consumer inflation remains above the midpoint of the 3%-6% target range.
Nedbank Group's economic unit anticipates that the Monetary Policy Committee (MPC) will maintain this rate, with the SARB's inflation forecast remaining stable since May, projecting headline inflation to reach the 4.5% target by Q2 2025.
Nedbank's assessment indicates balanced risks to the inflation outlook, noting that some concerns from May's MPC meeting have lessened.
The latest BER survey shows moderated inflation expectations, and the rand has performed better than expected. With political uncertainties resolved, global factors are expected to influence the rand for the rest of the year.
Improved domestic conditions, such as reduced load shedding, should help control input costs and price pressures, despite high global oil prices due to Middle East tensions.
Nedbank forecasts headline inflation to ease to 5.1% in June and gradually decrease to 4.9% by year-end. The average inflation is projected at 5.1% for 2024, 4.6% for 2025, and 4.5% for 2026.
Nedbank expects the SARB to keep the repo rate at 8.25% in upcoming meetings, with potential rate cuts in Q3. They predict a 25-bps cut in September and another in November, lowering the repo rate to 7.75% by year-end, with the prime lending rate at 11.25%.
The property industry is urging the SARB to cut rates as sales have dropped by 25%. Giovanni Gaggia, CEO of Real Estate Services, pointed out that lower rates would make homeownership more affordable and invigorate the market.
Seef Property Group's chairman, Samuel Seeff, added that delays in rate cuts are harming the economy and the property market.
Bank of America (BofA) economist Tatonga Rusike believes the MPC will unanimously keep the repo rate unchanged but sees potential for cuts if US inflation data improves and the Fed cuts rates in September.
BofA forecasts a cumulative 100 bps cut by mid-2025, with inflation averaging 5% in 2024 and 4.7% in 2025 and 2026.
"If [the] Fed were to initiate [the] cutting cycle as early as September, we would see two SARB cuts, in September and November," BofA Securities said in a research note on Monday.
Investec economist Lara Hodes also expects the MPC to hold the repo rate at 8.25%, with a potential start to the easing cycle in November or early 2025.
“We continue to pencil in a start to the easing cycle in November, although the risk is that the South Africa interest rate cutting cycle only begins in 2025,” said Hodes.
BofA's base case is for the first SARB rate cut in January 2025, followed by additional cuts throughout the year.
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