Interest rate cut not yet on the cards, say economists

Economists say interest rates are likely to remain unchanged.

Economists say interest rates are likely to remain unchanged.

Published Mar 12, 2024


Economists say interest rates are likely to remain unchanged when the Monetary Policy Committee (MPC) meets this month, due to inflation being at over 5% and a weaker rand.

Johann Els, Old Mutual Group chief economist, said he expected the interest rate to remain unchanged.

“Inflation has eased a bit but unfortunately there is still uncertainty, more especially because of the fuel price increases we have seen this year.

“The South African Reserve Bank (SARB) will be concerned about the impact that could drift into headline inflation. The SARB needs to see headline decreases before they implement any interest rate cuts.”

Els said the economy is currently weak at the moment.

“However the SARB says it’s not because of high interest rates but because of structural issues such as the electricity crisis and freight challenges.

“However I do expect headline inflation to ease over the next few months. Remember core inflation is already almost settled at 4.5%, which is within the SARB target range of 3-6%.

I do see headline inflation reaching that point in the next month or two.”

Els anticipated that there would be no further interest rate increases and any cuts would only come in May.

“If all goes well it will start in May. We also hope there is no volatility during the elections as that can impact inflation.”

Dr Ntokozo Nzimande, a senior lecturer in the department of economics at UCT, said that across the globe, financial conditions have been easing, and while inflation risks persist, the pressure has somewhat abated.

“Inflation is gradually receding towards its target. I anticipate that policymakers will maintain the same stance as last time and keep the interest rate unchanged. It’s plausible to anticipate a potential interest rate decrease later in the year.”

Professor Irrshad Kaseeram, from the University of Zululand’s Economics Department, said current inflation is at 5.1%, although below the 6% target range it still remains above the midpoint of 4.5%.

“Given the rand has weakened to R18.50 to the dollar and the US is expected to only cut interest rates later in the year due to persistent inflation, this will cause the rand to remain weaker for longer since investors will prefer to lend in the US.”

Kaseeram added that the weaker rand causes imports to be more expensive for South Africans hence to attract short-term investors SARB is forced to keep repo rate higher.

“They will only reduce rates after the US Fed rate is reduced, possibly in May-July.”

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, said that consumers do not expect any dramatic rate cutting cycle to begin in March. “Many economists predict that at best, interest rates will only come down by 1% over the course of the year, which will still leave us at a higher rate than we were pre-Covid.”

Goslett added that even a 0.25% drop in interest rates can go a long way towards relieving some of the financial pressure many households are undoubtedly facing.

“If we do experience a cut, I advise consumers to work wisely with any money that is freed up as a result. If you can afford to keep your repayments where they were before the cut, then I would strongly recommend that you do so, as this will help you to pay off the debt faster and reduce the amount of interest payable over the loan term,”

Goslett said that even if we see one or two cuts during the year – which will bring some much-needed financial relief – interest rates are likely to remain high for the foreseeable future.

The Mercury