Traders Anticipate South Africa Interest Rate Cut in March 2024

Traders have adjusted their predictions for South Africa’s first interest rate cut, moving it up to March 2024. This shift comes in response to the economy witnessing its weakest growth in nearly two years, with reduced money flow and private sector loans.

Weakest Growth in Key Indicators

In October, the growth in money supply and private credit extension fell below expectations, registering at 6% and 3.9%, respectively—compared to the anticipated 7.1% and 4.3%. These figures are crucial indicators of economic health.

Changing Rate Expectations

Forward-rate agreements, commonly used for speculating on borrowing costs, now indicate a 25-basis-point rate cut in March. This adjustment is earlier than the consensus among most economists, who previously expected a rate cut in May.

Economic Strain Signals

The slowdown in both money supply and private credit extension may serve as early signals of financial strain among households and corporations due to higher interest rates.

Central Bank’s Response

Having kept borrowing costs steady in July and subsequent meetings, the central bank’s monetary policy committee had raised interest rates by a cumulative 475 basis points since November 2021 to combat inflation. Governor Lesetja Kganyago affirmed last week that the current 8.25% interest rate is restrictive, aligning with the inflation outlook and elevated expectations.

Inflation Outlook and Preparedness

Governor Kganyago emphasized the presence of “serious upside risks to the inflation outlook,” asserting the MPC’s readiness to act should these risks materialize. Price pressures have consistently exceeded the midpoint of the bank’s 3% to 6% inflation target range for over two years, prompting a vigilant stance from the monetary policy committee.