An interest rate reduction before the end of this year is looking increasingly unlikely. File picture: Markus Spiske via Unsplash.
South Africa’s interest rate is widely expected to remain unchanged when the Monetary Policy Committee (MPC) announces its latest repo rate decision on Thursday.
In fact it’s looking very possible that the interest rate will remain unchanged for the rest of this year, Everest Wealth CEO Thys van Zyl says.
Even though inflation has fallen back within the Reserve Bank’s target band of 3% to 6%, it is taking longer to reach its goal of 4.5%. The inflation rate eased back to 5.2% in April, from 5.3% in March.
Van Zyl said there were still many uncertainties surrounding the current inflation outlook, and for that reason an interest rate cut is only likely to become a possibility towards the end of this year.
"The result of the election and possible consequences will also have to be taken into account first and we will have to wait and see if the US Federal Reserve considers lowering interest rates in September or November."
“The Reserve Bank's monetary policy committee will most likely also keep interest rates unchanged in July. The next interest rate decision is in September and November but there is the possibility that the interest rate will only be lowered in 2025 when the Reserve Bank is confident that it is on track to sustainably meet its inflation target,” Van Zyl added.
While a 25 basis point reduction is deemed possible by November, the expectation is that the rate-cutting cycle may only start in January, and by then a reduction of 50 basis points may even be on the cards, the CEO said.
The performance of the rand will also have a bearing on the inflation rate and ultimate interest rate decisions. While the local currency has been trading stronger in the run-up to the elections, largely fuelled by the suspension of load shedding, its continued strength will depend on the outcome of the election. A return of load shedding later in winter could throw a curve ball into the mix.
Lower interest rates cannot come soon enough as consumers buckle under the pressure of rising living costs that are not for the most part being matched by salary increases.
“The average salary in the country is also not increasing at the same rate and is therefore not enough to counter inflation, and South Africans are getting poorer and poorer,” Van Zyl said.
“Consumers must guard against taking on further debt unnecessarily, using credit cards recklessly, living beyond their means and should think twice about every rand spent.”