The South African Reserve Bank (SARB) will not increase interest rates again in 2023, an economist said on Tuesday.
A new report by PricewaterhouseCoopers (PwC) on the South Africa Economic Outlook for August 2023 states that the Reserve Bank is likely to start lowering the repo rate through 2024.
“The next step in the interest rate cycle will then most likely be a reduction in the repo rate as inflation abates further,” Lullu Krugel, PwC South Africa Chief Economist said.
“We believe this is likely to start around the middle of next year pending — as the SARB has often said — favourable data and risk developments.
“We do not anticipate interest rates to come down again to the low levels seen in 2020. Instead, it is likely that two percentage points could be shaved off towards the end of 2025. That would bring the repo rate back to pre-pandemic levels and support household spending,” Krugel explained.
A STRONGER ECONOMY
Old Mutual Wealth Investment Strategist, Izak Odendaal said on Monday that he is also optimistic about SA’s economy.
He doubts that the repo rate will be increased by the Reserve Bank.
“The last few weeks have seen mixed news on the South African economy. As usual, there is a lot to worry about, but there are also reasons to be a bit more upbeat,” Odendaal noted.
“The economy grew more than expected in the second quarter. Stats SA data on real gross domestic product (GDP), the broadest measure of economic activity, showed growth of 0.6 percent between the first and second quarters.
“The official numbers are no longer annualised, but if they were, it would amount to 2.4 percent.
“This was better than expected and shows an acceleration in growth from the first quarter, despite the ongoing headwinds of load shedding, logistical bottlenecks, high interest rates and lower commodity prices.
“Despite the softer rand, higher petrol price and wider current account deficit, the Reserve Bank is unlikely to increase the repo rate this week, but these factors do mean that the bar to cutting rates is higher.
“At 8.25%, the repo rate is already much higher than inflation of 4.7% and, therefore, well in restrictive territory, meaning that it is acting to cool demand in the economy. Higher rates are not needed,” he said.
REAL REPO RATE
The repo rate has essentially had its highest high, and according to PwC, there has also been a decline in consumer price inflation.
“Another key metric we are monitoring is the real repo rate, i.e. the inflation-adjusted return provided by domestic interest rates,” the report noted.
“The SARB expects the real repo rate to increase from -1.4 percent in 2022 to 2.7 percent this year and 3.0 percent in 2024. This is above the SARB’s view of a steady state neutral real interest rate of 2.5 percent. In other words, the trends in both the nominal repo rate and inflation, point to an on-goal real repo rate in the near future.”
JOBS
The report by PwC also looked at employment growth in SA and was optimistic about the state’s economic growth.
“South African employment increased by 784 000 jobs (5.0%) in the year ending 2023Q2,” the report noted.
“This substantial increase in employment contrasts with weak economic growth due to, among other factors, electricity load shedding and supply chain disruptions.
“The strong increase in jobs over the past year is encouraging and reflects a growing resilience on the part of private business against the negative impacts of electricity outages.”
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