FNB has adjusted its forecasts for interest rates and GDP downward, which is expected to slow down the recovery of the housing market in South Africa amid ongoing economic challenges.
Senior economist Siphamandla Mkhwanazi of FNB noted that recent data indicates a stronger economic performance in the US, with inflation remaining stubbornly high compared to earlier predictions.
The Federal Reserve plans to keep interest rates elevated until inflation reaches its target level.
As a result, FNB now predicts a longer period of high US interest rates, postponing the expected rate cut from June to September and forecasting a less aggressive cutting cycle over the next year.
In South Africa, the Reserve Bank intends to adjust the inflation target from 4.5% to 3%, although the timing of this change is uncertain. This shift may require keeping interest rates higher for a longer duration to align with the new target and manage inflation effectively.
In light of these factors, FNB has revised its repo rate forecast, anticipating a delayed and less pronounced cutting cycle. The first rate cut is now projected for November instead of July, with rates expected to reach 7.5% by the end of the following year.
Mkhwanazi pointed to the potential benefits in the medium-to-long term, such as increased competitiveness in capital markets and more stable inflation, which could pave the way for structurally lower interest rates.
However, he cautioned that inflation is forecasted to average 5.2% this year, gradually declining to 4.5% by 2026.
With the updated outlook on interest rates and slightly weaker economic performance in the first quarter, FNB has adjusted its GDP growth projections downward by 0.1 percentage point throughout the forecast period.
Growth is now expected to average 1.2% this year before gradually increasing to 1.6% by 2026.
According to FNB's analysis, these adjustments imply a slightly delayed housing market recovery with a moderated growth trajectory compared to previous expectations.
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