There is a glimmer of hope that the South African Reserve Bank could start cutting interest rates this year. This comes after the SARB has predicted that the annual inflation would average 5% in 2024.
This, contained in the Bank’s annual report for the year 2023/2024, is a strong indication that the Bank could give heavily indebted consumers relief by reducing interest rates.
Lower inflation predicted
The report projected that inflation was expected to cool off further to 4.5% towards the end of 2025. Both inflation predictions for 2024 and 2025 are within the Bank’s inflation target range of between 3% and 6%, which increase chance of an interest decrease.
“Reflecting on the past year, global conditions remain strained and inflation has been higher than expected. Interest rates have likewise stayed high and the dollar remains strong, to the detriment of most other currencies, including the rand,” stated Reserve Bank Governor Lesetja.
“Headline inflation returned to our target range of 3–6% in June 2023, but has since then been stuck in the top half of that range, making no clear progress towards our 4.5% midpoint objective.”
“To achieve our target, the MPC has been holding rates at 8.25%, a level we consider restrictive.
“The forecast from our quarterly projection model shows the policy rate easing this year, moving back towards ‘normal’ levels as inflation slows. The upside risks to this forecast, however, are prompting the MPC to keep rates on hold.
“These risks include persistently elevated rates from advanced economy central banks, especially the US Federal Reserve; higher and less stable inflation expectations; and new fuel and food price pressures.
High unemployment rate concern
He also raised concern about the country’s high unemployment rate.
“The labour market data show we have more jobs now than we did before the onset of COVID-19. Nonetheless, the unemployment rate in May 2024 is at 32.9%, compared to 28.7% in 2019 and 25.1% in 2014.
“This reflects an economy that is not absorbing a growing workforce. Weak domestic growth, alongside high unemployment, has nonetheless not translated into markedly lower inflation,” he said.
