BofA sees March rate cut as Moody's flags debt and SOE risks in South Africa's recovery

Ratings agency cautions that perstistant structural weaknesses, debt, weak labour and SOEs continue to pose risks

- TAWANDA KAROMBO

SOUTH Africa is increasingly likely to see another 25 basis point interest rate cut as early as next month, as confidence in the country’s economic turnaround gains traction, according to Bank of America (BofA).

However, ratings agency Moody’s has cautioned that persistent structural weaknesses — including high government debt, weak labour market outcomes and underperforming State-Owned Enterprises (SOE) — continue to pose significant risks.

BofA analysts on Tuesday said they expect that South Africa’s economic growth will spring up to above 1.5% this year on the back of stronger precious metals prices and improved consumption. The South Africa Reserve Bank (Sarb), in tandem with Treasury, has also revised downwards the inflation target to 3%.

BofA Sub-Saharan Africa analyst, Tatonga Rusike has now projected a further 25bps rate cut in March, with inflation seen averaging 3.4% this year. In January, the Sarb left its main lending rate unchanged at 6.75%.