Expectations around interest rate cuts in South Africa have turned, with a host of market realities and future risks keeping sentiment grounded.
Hopes for interest rate relief in South Africa anytime soon are dimming as a perfect storm of adverse conditions, with risks on the upside, in play.Higher fuel prices adding to inflationary pressures, with more hikes expectedThe weakening rand against the US dollarInvestec chief economist Annabel Bishop says all of these conditions—and the risk of worse to come—support a delay in the start of South Africa’s interest rate cut cycle.
The quantum of rate cuts has also changed, with expectations moving from 100 basis points cut in 2024, seen at the start of the year, to 75bp and, most recently, only 50bp. February saw CPI inflation jump up to 5.6% y/y in South Africa, from 5.3% y/y in January, and 5.1% y/y in December, with inflation remaining above 5.0% y/y since September last year.
March saw another significantly hike in both petrol and diesel prices, which will likely feed through in the inflation figures. “The moderation in food price inflation to date is expected to reverse, leading to upwards pressure on CPI inflation from this heavily weighted component, although there is a lag between SA’s agricultural food price changes and those in the CPI,” Bishop said.
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