Nedbank said this week that relief from high interest rates will not be as expedient as previously thought.
The South African Reserve Bank (SARB) noted last week that interest rates will remain and the comments from governor Lesetja Kganyago have suggested that interest rates will be kept at the current restrictive level for longer.
Economists at the banking institution said that the shift in sentiment from the Monetary Policy Committee was also seen in the Quarterly Projection Model's repo rate projections.
The bank said in its weekly economic monitor that it now only recommends cumulative cuts of around 50 basis points (bps) in 2024 compared with 75bps at the previous meeting.
Nedbank also noted several factors that will impact the economy in the coming weeks and months.
“Our inflation forecasts are almost identical to those of the SARB. As noted in our preview, we also consider the threat posed by El Nińo to food prices and a rand vulnerable to the likely jitters around the May 29 elections as the most significant upside risks to the outlook,” the bank said.
The MPC will likely remain cautious for longer and it seems more likely that interest rates will remain unchanged deep into Quarter three, followed by two cuts of 25bps each in September and November, Nedbank’s economist said.
If these cuts materialise, the repo and prime rates at the end of the year will be at 7.75% and 11.25%, respectively.
Global inflation also a factor
In his speech last week Kganyago noted the impact global inflation has placed on South Africa.
“Since the start of the year, we have seen persistent global inflation pressures. Headline inflation rates are generally lower than they were a year ago, but underlying inflation is still elevated. Goods inflation has declined significantly, as supply shocks wear off, but there is evidence of stronger inflation in services, across a range of economies,” Kganyago said.
The governor acknowledged that while other emerging central banks have been lowering rates, these economies had undergone significant rate hikes previously, resulting in their interest rates now being well above inflation.
SA inflation continues to climb
Earlier this week, Anchor Capital said that February’s headline inflation rate continued to climb to a four-month high.
Inflation edged up slightly to 5.6% Year-on-Year (YoY) from 5.3% YoY in January.
This is not the best news for South African consumers as the figures show that we have moved further away from the 4.5% midpoint of the SARB’s target band.
The good news is that we are within the central bank's 3% to 6% target range.
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