South Africa's central bank is now expected to enact a mere 50 basis points of interest rate cuts this year, a downgrade from previous forecasts due to lingering inflation concerns, according to a recent Reuters poll. The anticipated cut is likely to be a 25 bps cut to 8.00 per cent in the next quarter, either in July or September, down from the previously predicted 50 bps in a March poll. The year-end repo rate is now forecasted to settle at 7.75 per cent, a revision from the earlier 7.50 per cent estimate, assuming another cut in November as indicated by the latest poll. Razia Khan, head of macro research for the region at Standard Chartered, noted a revised outlook for South Africa's easing cycle, expecting it to be more gradual and shallow. Despite inflation potentially dipping below the central bank's target band midpoint in the fourth quarter, Khan suggests it may ease hesitantly. The poll indicates a temporary inflation dip at the end of 2024 before a resurgence early next year. In March, the central bank maintained its main interest rate, citing the need for continued restrictive policy to tackle high inflation expectations. It pushed back the expectation for headline inflation to hit the 4.5 per cent midpoint of its target range to beyond 2025. However, the poll suggests this could occur in the third quarter of next year. Inflation is projected to average 5.1 per cent this year and 4.6 per cent next. Volkan Sezgin, senior economist at Continuum Economics, warns that the March inflation drop might be short-lived due to factors like drought conditions, rising oil prices, and a weakening rand. He anticipates the Reserve Bank delaying rate cuts until the third quarter, post the May 29 elections, contingent upon the trajectory of second-quarter CPI. South Africa, set to hold general elections next month, is not likely to see a rate cut at the upcoming Reserve Bank meeting, as indicated by only two of 20 economists surveyed. Economic growth forecasts remain at 1.1 per cent for this year and 1.6 per cent for next year, slightly improved from previous predictions.
