As the South African Reserve Bank’s Monetary Policy Committee meets, expectations for a 25 basis point rate cut rise due to stabilised inflation and the rand. Johann Els, Chief Economist at Old Mutual, highlights local economic indicators supporting easing, although global uncertainties persist. Key inflation metrics remain subdued, creating an acceptable economic outlook. Furthermore, the MPC’s decision will be crucial in navigating domestic growth against global risks.
As the South African Reserve Bank’s Monetary Policy Committee (MPC) prepares for its upcoming meeting on March 20, 2025, there is growing speculation regarding a potential 25 basis point rate cut. This anticipation arises from stabilised domestic inflation and a stable rand, despite ongoing global uncertainties.
Johann Els, Chief Economist at Old Mutual Group, pointed out that local economic indicators support the case for monetary easing. He stated, “The Reserve Bank’s January cut was undertaken amid significant warnings about global risks… since then, many of these risks have materialised, yet the rand remains as stable as it was in January.”
Recent consumer price index (CPI) figures indicate subdued inflationary pressures, particularly in rental prices and owner’s equivalent rent, which remained below forecasts. Additionally, lower-than-expected electricity price increases and an anticipated petrol price decrease have improved inflation dynamics.
Els emphasized that the actual electricity price figures have been lower than initial forecasts, combining with stable oil prices to create an acceptable inflation outlook. He said, “Even though our forecast in January assumed a much higher electricity price increase… this points to an inflation outlook that is quite acceptable.”
The potential rate cut emerges in a context of global economic fluctuation, with the Federal Reserve likely to maintain rates at its meeting on Wednesday. Participants expect future cuts if the US economy continues to weaken.
Johann noted, “The US dollar has recently weakened… This dollar weakness has helped stabilise the rand, reinforcing our case for a further rate cut.”
Despite favourable domestic conditions, Els warned that the MPC’s decision would require careful consideration. He predicts a possible split decision, suggesting that although the stable rand and softer inflation figures support a rate cut, there will most likely be a hawkish statement regarding global risks, particularly concerning US trade policies.
Looking ahead, Els cautioned that the upcoming rate cut could signify the end of the current easing cycle, but further cuts may be necessary if the US economy weakens significantly or inflation surprises emerge negatively. He concluded, “There is a real possibility of further rate cuts down the line, particularly if we see… a stronger, more stable rand.”
As the meeting approaches, investors will be closely monitoring how the Reserve Bank balances the need for growth against external risks. The outcome of this meeting will influence borrowing costs and shape future monetary policy amidst a volatile global landscape.
In conclusion, the South African Reserve Bank’s upcoming MPC meeting will likely focus on the prospects of a rate cut driven by stable inflation and a solid rand. Despite positive indicators, global uncertainties persist, necessitating a careful approach by the MPC. Market participants await the committee’s decisions, which will have significant implications for borrowing costs and overall economic policy in South Africa. The balance between promoting growth and addressing external risks remains a critical consideration.
Original Source: www.zawya.com
