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South Africa rate cut likely in November

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South Africa’s Reserve Bank is expected to cut interest rates again in November and possibly even September given the relatively tame inflation outlook, a Reuters poll found on Friday.

The central bank unexpectedly cut its repo rate by 25 basis points to 6.75 percent for the first time in five years in July, taking advantage of slower inflation to support a sickly economy.

While 11 of 27 economists in the latest Reuters poll taken this week forecast an interest rate cut of varying amounts next month, the Bank was seen as more likely to pause and instead cut at its meeting in November.

Only five economists polled forecast rates on hold through the end of the year. The survey median shows South Africa rates cut by 25 basis points to 6.50 percent in November and then on hold there through to early 2019.

“We think there is a small window here to cut. It would be quite easy to justify three cuts in a row: July, September, and November,” said Citi economist Gina Schoeman.

“But then again, the Reserve Bank is more prudent, which adds to their credibility, which is why they will pause in September,” she added.

However, Schoeman said should the Bank wait, it could be faced with problems in the first half of next year as markets get more volatile worrying about potential sovereign rating downgrades.

The rand has been relatively flat a month after last month’s rate cut. It was forecast in a recent Reuters poll to weaken almost two percent over the next six months but to still hold on to some of the year’s gains. [ZAR/POLL]

“We assume they don’t downgrade us this year, but all of the negative outlooks will expire by the middle of next year,” Schoeman added.

With inflation slowing to 5.1 percent in June and expected to average just 5.4 percent this year and 5.2 percent next, a few economists suggested the Bank could cut go for growth and cut rates by a full percentage point by year-end and finish next year at 4.75 percent.

Poll medians for growth also indicated that South Africa probably escaped another contraction in the three months just gone by, likely growing by an annualised 0.8 percent.

Growth is expected to remain poor, averaging 0.6 percent this year and 1.2 percent next year.

Moody’s rating agency said on Wednesday, a week after President Jacob Zuma survived a no-confidence vote in parliament, that political tensions in the ruling African National Congress (ANC) will weigh on South Africa’s growth.

The ANC is due to pick a successor to Zuma in its December leadership conference, a candidate likely to be the face of its 2019 election campaign.

Credit: CNBC Africa

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