Standard Bank anticipates the Reserve Bank will reduce interest rates twice before the end of 2024, influenced by the optimism surrounding the establishment of the Government of National Unity (GNU).
This projection was shared following a trading update for the first five months of Standard Bank's 2024 financial year.
The bank foresees these cuts being spread out, with two cuts of 25 basis points in the second half of 2024 starting in September and two cuts of 25 basis points in the first half of 2025.
It reported that its headline earnings increased by low-to-mid single digits compared to the same period in 2023, driven by higher transaction volumes and elevated interest rates.
The bank observed lower trading volumes leading up to the South African election at the end of the five-month period, as investors were cautious.
Nonetheless, it expects a reversal in this trend following a positive election outcome and the formation of a comprehensive GNU.
The political developments have positively impacted the market, strengthening the rand to around R18 to the dollar and attracting foreign investment into local assets.
CFO Arno Daehnke stated in a pre-close investor call that this is expected to enhance the bank’s trading revenue and South Africa's economic growth.
“We expect a continued commitment to the fiscal consolidation plan and ongoing traction with the growth-supportive reforms underway.”
These reforms and investor optimism are likely to hasten the Reserve Bank’s transition to a cycle of interest rate cuts.
Daehnke stressed that markets remain volatile which may lead the Reserve Bank to delay interest rate cuts to avoid adding further volatility.
“We expect some interest rate cuts across our portfolio of countries in the second half of the year. However, they are likely to be delayed in South Africa due to the election outcome,” Daehnke said.
“Our latest house view, based on Standard Bank Research, remains 100 basis points of cumulative interest rate cuts.”
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