If implemented, this would mark the second consecutive rate reduction, providing a much-needed boost to consumer and business confidence during the festive season and into 2024, while also aiming to stimulate economic growth.

The MPC’s decision aligns with global trends. Two weeks ago, the US Federal Reserve (FOMC) lowered its interest rate by 0.25%, setting the tone for other central banks, including SARB. The MPC typically takes cues from the Fed’s policies and is expected to proceed cautiously with rate cuts.  

Despite economic challenges, the South African inflation outlook supports such a move. In September, headline consumer inflation eased to 3.8%, down from 4.4% in August. Economists believe inflation will remain close to the Reserve Bank's midpoint target of 4.5%, paving the way for further rate reductions.  

Nedbank economist Isaac Matshego projects that the MPC will cut the repo rate by 25 basis points, highlighting a positive inflation trajectory. He explains:  

"We expect the Reserve Bank to cut the repo rate by another 25 basis points. CPI data, to be released before the announcement, is anticipated to show a further decline in inflation to 3.3%. With fuel prices exerting downward pressure and food inflation remaining contained, we foresee additional rate cuts in 2025, with three reductions likely in the first half of the year."  

The recent easing of inflation has been driven by lower global oil prices and a stronger Rand. Fuel prices in September were 9% lower year-on-year, while food prices have stabilised at around 4%. Independent economist Elise Kruger expects October's inflation rate to have fallen further.  

I expect the headline inflation rate for October to moderate to 3% annually, the lowest since February 2021, down from 3.8% in September. This notable drop stems from reduced fuel prices, including a R1.10 per litre decrease in petrol and wholesale diesel prices at the start of October, coupled with a further moderation in food price inflation."  

The outlook for inflation remains stable, with the average Consumer Price Index (CPI) forecasted to hover around 4.5% in 2024. This stability, alongside declining inflation figures, strengthens the case for continued rate cuts.  

Kruger added, "Given the current conditions, the MPC is likely to announce another 25 basis point cut in the repo rate at this week's meeting."  

The Rand’s performance has also influenced monetary policy considerations. The currency initially weakened against the US dollar following Donald Trump’s election as US president but regained some strength after S&P Global removed political risk from South Africa's credit rating outlook.  

With a supportive inflation environment and improving investor sentiment, the anticipated rate cut would signal the Reserve Bank's commitment to fostering economic recovery. Consumers and businesses alike are hopeful for more rate reductions in the months ahead to ease financial pressures and encourage spending and investment.  

The MPC's decision will be announced later this week, with expectations high for a positive outcome to cap off 2024.

--ChannelAfrica--