Sanlam Investments says that while there’s optimism the South African Reserve Bank’s monetary policy committee (MPC) could vote in favour of a repo rate cut on Thursday, the decision remains balanced.
The MPC is set to announce its latest decision on Thursday afternoon, following its last meeting of the year.
Rates have eased by 125 basis points since September last year, when the central bank started its cutting cycle. The repo rate currently sits at 7%, while the prime lending rate sits at 10.5%.
Chief economist at Sanlam Investments, Arthur Kamp, said the market had priced in a high probability of a 25-basis-point cut.
“There are a number of factors supporting this view. Generally, inflation outcomes have surprised on the low side this year. The rand has been relatively stable of late, and although real GDP growth appears to be on an improving trend, it is still subdued. Further, the US Federal Reserve is expected to cut its policy interest rate further. And following the recent Medium-Term Budget Policy Statement, there’s greater optimism, it appears, about South Africa’s fiscal consolidation effort,”Kamp states.
However, he cautions that the MPC could still wait until next year to cut the benchmark policy rate.
“The reason why one would pause for thought is the new inflation target, which is 3% with a tolerance band of 1%. However, the focal point of the new target is 3%, and inflation has been drifting higher. It is possible the reserve bank may decide to wait to ensure that the inflation pickup is temporary and that inflation will recede towards 3% again over the medium term,” he added.