No rate cut by SA Reserve Bank predicted in May

TOWARDS the end of the month, the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) will be meeting to make its latest decision on the repurchase rate (repo rate) for the country.

- ASHLEY LECHMAN

Despite inflation being the lowest it has been since June 2020, economists widely anticipate that the central bank will keep the repo rate unchanged in May.

Lead economist at KPMG, Frank Blackmore, told Business Report that there is a difference between what the SARB will do and what he thinks the should do.

Blackmore said that the SARB’s MPC made it clear that its decisions are data-dependent, relying on both current inflation readings and future inflation expectations.

"The latest inflation rate of 2.7% is well below the midpoint of their target (4.5%) and even below the lower bound of the 3%-6% inflation target range. This suggests that inflation expectations for 2025 remain muted, which would typically support a further interest rate cut, potentially by 25 basis points this month.

Additionally, much of the recent market volatility, driven by uncertainty around tariffs imposed by the US administration, has subsided," Blackmore said.

"Markets have generally returned to levels seen prior to the tariff announcements earlier in the year. Meanwhile, the South African economy is struggling for growth.

Initial optimistic forecasts of just under 2% have been revised down to around 1%. In this context, any policy support, such as a rate cut, would be welcome.