South African Reserve Bank (SARB) Governor Lesetja Kganyago. Economists expect the SARB to announce a 0.25 percentage point cut in the interest rate next week, which would take the prime lending rate down to 11%. Picture: Thobile Mathonsi/Independent Newspapers
Nicola Mawson
As inflation continues to grow at a manageable rate, at the bottom end of the South African Reserve Bank’s (SARB’s) target range, economists expect a 0.25 percentage point cut in the interest rate next week, which would take the prime lending rate down to 11%.
Statistics South Africa reported on Wednesday that inflation for 2024 overall came in substantially lower year-on-year at 4.4% compared with the comparative print of 6% in 2023.
While December’s figure was marginally higher than that of November, the 3% recorded was substantially lower than the 5.1% number recorded in the last month of 2023.
Investec chief economist, Annabel Bishop, said the SARB’s Monetary Policy Committee was expected to trim interest rates next week by 25 basis points, given that inflation remains well below the mid-point of the inflation target of 4.5% year-on-year, and likely to remain so for the rest of this year and most of the first half of next year.
Bishop had predicted that inflation for December would be close to 3% year-on-year. She said in a note that 2025’s inflation print would likely land at 3.5%, with 2026’s number expected to show growth of 4.6%. This, she noted, was in comparison to the SARB’s unofficial target of 4.5%.
SARB Governor Lesetja Kganyago has said several times that the bank will push for a lower inflation target of 4.5% instead of the 3-6% band, although this is yet to be announced.
Old Mutual Group chief economist, Johann Els, said the lower inflation print was a pleasant surprise as his prediction for December was 3.2%. He also anticipated a 0.25 percentage point decrease in interest rates when the decision comes out next week.
Els added that inflation was likely to stay in the mid-range of the 3-6% range this year, although it may drift somewhat upwards.
“There is no evidence of any price pressures at all. Core inflation, that's the headline number excluding food and energy, slipped further from 3.7% to 3.6%. Consumer goods inflation is unchanged at 1.7%,” he added.
Koketso Mano, FNB senior economist, said “the print was slightly below our and the market expectation of 3.1%”. She noted that benign local inflation, based on the SARB’s latest forecasts, should support a continued interest rate cutting cycle.
“We predict that [the repo] rate will be cut to 7% by the end of the first half of 2025, however, there is risk that we could see less cuts,” Mano said.
The repurchase rate (repo rate) is currently 7.75% per annum.
FNB anticipates inflation remaining subdued in the first half of this year, settling above 5% by the end of 2025.
“Nevertheless, average inflation should be softer than in 2024. Risks to the outlook include a more robust normalisation in services inflation as well as a faster acceleration in administered price inflation,” Mano said.
Dr Elna Moolman, Standard Bank Group head of South Africa macroeconomic research, stated that consumer inflation reaching the bottom of the SARB’s target range in December is due to several factors. Included in this, she explained, was the fact that fuel prices were still more than 10% below their levels a year earlier, while food prices increased by only 1.7% compared to December 2023.
The key figure of rental inflation remained “subdued,” she said, which shows that consumer-driven cost-of-living pressure is still passive.
“This should go a long way in alleviating any concerns about the inflationary pressure that we could see down the line from the current currency weakness,” Moolman stated.
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