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IOL News
16-05-2025
- Business
- IOL News
Interest rate cut anticipated as inflation declines in South Africa
Inflation data is due out on the same day as National Budget 3.0, with an announcement from the South African Reserve Bank to be made the following Thursday. Image: Ai As the cost of living continues to decline, with the latest inflation figures due out next Wednesday, those in the know are betting on an interest rate cut, even though it may be a close call. Inflation data is due out on the same day as National Budget 3.0, with an announcement from the South African Reserve Bank to be made the following Thursday. On the back of recent easing in the oil price, a more stable rand exchange rate, and easing global trade tensions compared when to the March Monetary Policy Committee (MPC) meeting, the South African Reserve Bank should cut rates by 0.25 percentage points, said Old Mutual chief economist, Johann Els. 'I still think it's going to be split decision by the MPC and there might still be warnings around global risks, but these risks have eased substantially since the March meeting,' he noted. The MPC is made up of five people, with South African Reserve Bank Governor Lesetja Kganyago having the swing vote. Currently, the prime lending rate is 11%. 'With inflation this low across all categories… there is certainly room for at least 75bps of rate cuts over the next few meetings. The Reserve Bank will probably not cut by 75bps, but only 50bps,' said Els. He explained that this would be a two-meeting process. Nolan Wapenaar, Anchor Capital co-chief investment officer, said his view was to see a 0.25 percentage point interest rate cut later this month followed by the same decline at the next meeting. 'Skipping a cut in interest rates in May would be a missed opportunity. There is certainly a window of opportunity at the moment to cut rates,' said Els. Given reports that National Treasury and the central bank are looking at reworking the inflation rate target to a narrower band than the current 3% to 6%, Wapenaar said this could mean fewer rate cuts for South Africa in the near term than there would have been. Kganyago has been publicly suggesting that the target band will be shrunk for some time. Els, however, said that such a policy move will take time to come into effect. On inflation, Els said that the April Consumer Price Index (CPI) is likely to come in at 2.6% when compared with the year-on-year rate currently of 2.7%. He added that there was a chance that the increases in the cost of living could come in at 2.5% year-on-year. 'However, even 2.6% is exactly half the 5.2% of April 2024, a remarkable improvement in inflation over the past year. My expectation for the April number of 2.6% but also very subdued price pressures seen everywhere else,' said Els. Els explained that fuel dropped 76c a liter at the beginning of May versus a 65c a liter increase a year ago, which means that the base effect is already assisting lower inflation. In addition, he said there was very little price pressure from consumer goods, food, or services. 'In terms of the inflation numbers over the next few months, May inflation and June inflation will likely also be close to 2.5%. In fact, my average second quarter CPI inflation forecast is 2.5%,' said Els. He added that his average for the year is 3.2%. Thanks to the declining oil prices, a decline of 25% since January in rand terms, South Africans could see more petrol price cuts coming in June, said Els. IOL
IOL News
16-05-2025
- Business
- IOL News
Rand flexes its muscles against the dollar as new inflation targeting plans roll in
Having started Friday off at R18.01 to the dollar – its lowest point since December 12 last year – the local currency had only lost 3c by lunch time driven by a better geopolitical situation. Andre Cilliers, currency strategist at TreasuryONE, said the rand firmed to its best level for the year so far after Deputy Finance Minister David Masondo said the country may introduce a new inflation targeting plan. Bianca Botes, director at Citadel Global, added the rand strengthened nearly 1% to around R18.01 this morning as it benefitted from news that a new inflation target will be announced imminently. South African Reserve Bank Governor Lesetja Kganyago has been publicly suggesting that the target band of between 3% and 6% be shrunk to 3% for some time. This, however, will require a policy change from National Treasury. After starting the day at R18.01 to the dollar, the South African rand shows signs of strengthening, driven by potential changes in inflation targeting and positive geopolitical developments. Image: Morningstar Should the target band be narrowed, it's less likely that interest rates will come down, which supports the currency and will encourage international investors, dropping the rand against the dollar. Nolan Wapenaar, Anchor Capital co-chief investment officer, said domestic politics are also supportive of the rand as the message 'that we expect the Government of National Unity to pass the National Budget 3.0 was well received'. The National Budget will be presented next Wednesday. Botes said the local currency was buoyed by a weaker greenback and anticipation of a key meeting between President Cyril Ramaphosa and US President, Donald Trump. That meeting is apparently set for later this month. 'Despite this, domestic challenges like renewed power cuts and fiscal uncertainty continue to weigh on South Africa's outlook,' Botes added. Yet, said Cilliers, with little data on the economic front, markets' attention will likely remain on international geopolitics. Wapenaar said the stronger rand follows the continued recovery of global financial market sentiment as tariff issues seem to be getting resolved with US President Donald Trump having a successful trip to the Gulf. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ Trump signed several trade deals during his visit to the Gulf this week, including with Saudi Arabia, Qatar and the United Arab Emirates. Botes said, 'early optimism from a temporary US-China tariff reduction pushed the dollar higher at the start of the week, but that momentum faded as softer US inflation and disappointing retail sales data raised doubts about consumer strength'. These economic signals led traders to expect more interest rate cuts from the Fed, while the dollar also lost ground against several Asian currencies amid speculation of a strategic push for a weaker currency in trade talks, said Botes. Cilliers also noted that the US currency has been battling to hold its own this week over mixed economic data and optimism over a trade truce. These, he said, have been the main factors influencing the dollar this week, as it struggles to hold onto gains. IOL
