Not unexpectedly, for the seventh time, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) decided by a four to two majority vote (as opposed to a unanimous decision in May) to again keep interest rates unchanged for now.
In commenting on this decision of 18 July, Prof Raymond Parsons, economist from the North-West University (NWU) Business School, says the MPC viewed the risks to the inflation outlook as now being on the upside again and wants to see low and stable inflation entrenched at its 4,5% target.
“The majority of MPC members therefore saw ‘stickiness’ in the inflation outlook as needing to be overcome before they would vote to change their present stance. Borrowing costs for business and consumers will therefore remain high for longer.”
However, Prof Parsons says that on present evidence, if inflation and inflationary expectations continue to unwind gradually, there is still a strong possibility of lower borrowing costs for business and consumers by the end of 2024.
“The latest MPC statement embodied some perceptions and trends that opened up the prospect that, barring shocks – and if the current MPC vote shifts in that direction – a lower interest rate cycle might commence later in the year, perhaps even by the MPC’s next meeting.”
According to Prof Parsons, global factors – such as easier US monetary policy in the near future – will also play a role in MPC decisions as to the timing and extent of domestic rate cuts. In any case, any eventual interest rate easing by the MPC is likely to be modest, possibly an initial reduction of 25 basis points. Monetary policy will therefore still broadly remain in restrictive territory in the foreseeable future.
“The MPC maintained its gross domestic product (GDP) growth forecasts for now as 1,2% in 2024 and 1,6% in 2025, while the latest IMF economic growth predictions for South Africa remained at only 0,9% in 2024 and 1,2% next year.”
Prof Parsons says the underlying message of the MPC statement was nevertheless clear. “The more reforms gain momentum, the more policy uncertainty will recede, and investor confidence and growth prospects will be strengthened.”
