Interest Rate Relief Anticipated for South Africans
Gerhard Barnard Inc Attorneys & Conveyancers anticipates forthcoming interest rate relief for South Africans. Standard Bank projects that the South African Reserve Bank (SARB) will implement four interest rate cuts throughout 2024, with each round amounting to a reduction of 25 basis points.
As a consequence of these measures, the repo rate is expected to decrease to 7.25% by the end of the year, aligning with the trend of inflation moderating towards the Reserve Bank’s target range of 3% to 6%.
Goolam Ballim, Chief Economist at Standard Bank, forecasts that interest rate reductions will commence in the second quarter of 2024. He suggests the possibility that the Reserve Bank might initiate rate cuts prior to the US Federal Reserve, contingent upon a significant cooldown in inflation.
Recent indications from US policymakers imply a delay in the Federal Reserve's rate-cutting cycle due to robust economic data. However, such circumstances should not deter the Reserve Bank from implementing rate cuts should inflationary pressures continue to ease within South Africa.
In parallel with emerging markets like Brazil, Mexico, Hungary, and Poland, which have already commenced rate cuts preceding the Fed, South Africa is poised to adjust its rates accordingly.
Standard Bank's rate projections hinge on the anticipation that consumer price inflation will average 5% in 2024, hovering marginally above the mid-point of the SARB’s target range at 4.5%. Nonetheless, this relief might be limited for South Africans, given that the Reserve Bank has cumulatively increased rates by 475 basis points since November 2021.
Even with a projected 100 basis point reduction in interest rates this year, rates are expected to persist at historical highs. Ballim predicts that such conditions will sustain subdued household spending, thereby impeding economic growth, which he estimates to be around 1.2% for South Africa in 2024.
South Africa's domestic economic challenges are further compounded by global factors, translating to a meager growth forecast of 1.2% for the year. Ballim envisions 2024 as a year divided into two halves: the first characterized by elevated uncertainty leading up to the national elections and the second focused on interpreting the election outcome.
The upcoming national elections carry substantial significance, potentially marking a transformative period where the ANC faces the possibility of losing its majority for the first time since the advent of democracy. Despite this potential shift, Ballim anticipates that the ANC will likely secure a majority at the national level, resulting in minimal alterations to policy.
He underscores that the reform agenda is unlikely to be derailed by the elections, yet challenges such as crime and local governance will persist.
Moreover, the crises at Eskom and Transnet are anticipated to exert downward pressure on economic growth. Logistics bottlenecks are projected to reduce potential growth by up to 1% of GDP, while electricity shortages could further curtail growth by up to 2%. Nevertheless, Ballim remains optimistic that through 2024, improvements in the situations at Transnet and Eskom will materialize as the government's reform agenda progresses and the private sector increases investments in these sectors.
