South Africa’s Reserve Bank to Ease Interest Rates Amid Global Uncertainty
As the world waits with bated breath for clarity on US President Donald Trump’s proposed tariffs and policies, the South African Reserve Bank is expected to take a cautious approach to interest rates. A recent Reuters poll suggests that the bank will trim its repo rate by a quarter of a percentage point to 7.50% next week, followed by another 25 basis point cut in March.
A Gentle Approach to Rate Cuts
The poll, which surveyed 19 economists, reveals a unanimous consensus on the initial rate cut. However, there is less agreement on the timing of subsequent cuts. A slim majority predicts another 25 basis point cut in March, while median forecasts suggest the bank will wait until the third quarter to make its final cut of the cycle.
The Impact of Trump’s Policies
Economists are divided on the potential impact of Trump’s policies on South Africa’s economy. Johannes Khosa, economist at the Nedbank Group Economic Unit, believes that Trump’s policies will lead to inflationary pressures, causing the US Fed to reduce rates slower or even stop cutting. This, in turn, would force the SARB to scale down its rate cuts to maintain the interest rate differential.
Rand Weakens Amid Global Uncertainty
The rand weakened on Monday following Trump’s announcement of policy changes, and again on Tuesday when he vowed to impose tariffs on the European Union and discussed punitive duties on Chinese imports. The US Federal Reserve is expected to hold its benchmark rate steady next week, as it too keeps a close eye on Trump’s administration and challenges from its own bond market.
Inflation and Growth Prospects
Inflation in South Africa rose for the second consecutive month in December, but remains below the mid-point of the Reserve Bank’s 3%-6% comfort level. The poll suggests it will average 4.1% this year and quicken to 4.5% next year. The South African economy is expected to grow 1.7% this year and 1.9% next, driven by improvements in the macroeconomic backdrop and a rebound in the agriculture sector.
Economic Outlook
David Omojomolo, Africa analyst at Capital Economics, is optimistic about South Africa’s growth prospects. “We think there’s enough evidence to suggest the improvements seen in the macroeconomic backdrop will continue this year,” he said. “The effects of load-shedding and logistics constraints should continue to fade, while the agriculture sector should soon rebound.” Capital Economics is joint most bullish on growth, forecasting 2.3% for South Africa this year.
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