Top South African economists expecting Reserve Bank to cut repo rate

Two of South Africa’s top economists agree that the South African Reserve Bank (SARB) is likely to reduce the repurchase rate (repo rate) by 25 basis points.

Repo rate cut to stimulate growth

The move is likely an attempt by SARB to stimulate growth in the stagnating economy. The growth rate has been hovering below 1% and this could be an attempt to push it above that mark.

The repo rate is significant because it is the rate of interest SARB charges commercial banks to loan money, so its reduction by 25 basis points, or 0.25%, means bank interest rates will drop to 10% as well.

Although, PwC chief economist Lullu Krugel believes a reduction of 50 basis points would have been more appropriate.

Change of heart

It is just six months since the Reserve Bank raised the repo rate by 25 basis points to halt rising inflation. However, according to Investec Bank chief economist Annabel Bishop, the inflation rate is expected to stay stable in the short to medium term.

“It has become the case in South Africa that the more moderate inflation environment has engendered lower inflation expectations, as the increase in the cost of living proves lower than in previous periods, often causing consumers to expect similar going forward, thereby entrenching lower inflation expectations,” she said.

“South Africa avoided a credit rating downgrade in the first quarter from Moody’s, which is also likely to have made the SARB keener to cut interest rates.

“Eskom is in line for a large rescue package, which would be advisable to use upfront to reduce the quantum of the debt, and so the drain of regular coupon payments. regular coupon payments.”

Both economists agree the unexpectedly strong rand has given SARB a little bit more wiggle room when it comes to monetary policy. The fact that the US Federal Reserve and European Central Banks also hinted at rate cuts would’ve helped too.