S’Africa’s Reserve Bank May Cut Rates

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South Africa’s Reserve Bank will probably cut interest rates next month or in September to boost the country’s economy, a Reuters poll found on Friday. A median forecast from 24 economists, polled this week, suggests the economy would grow 0.6 per cent this year, slower than last year’s 0.8 per cent and weaker than the 1.1 per cent predicted in a May poll. Growth is expected to accelerate next year to 1.4 per cent. Economists reckon this year’s slow growth should be enough to convince authorities to cut interest rates by 25 basis points to 6.50 per cent. Ten of 18 economists predicted rates would be cut in one of next quarter’s two policy meetings – July or September – a substantial uptick in expectations for lower rates. Last month, only two people forecast rate cuts.

“Inflation is now well-anchored within the three per cent to six per cent target range, and the economy is performing very poorly,” said John Ashbourne, senior emerging markets economist at Capital Economics. “We’ve pencilled in a cut from 6.75 per cent to 6.50 per cent at July’s meeting.” On Wednesday, the U.S. Federal Reserve signalled rate cuts may begin as early as July, in the face of growing global and domestic economic risks. Central banks in Australia, India, New Zealand and Russia have already cut rates.

The repo rate will probably remain at 6.5 per cent until the end of 2021 at least, the economists said. Inflation is expected to average 4.5 per cent this year and five per cent next year.

The bank left theft the repo rate unchanged at 6.75% in May, judging that easing inflation and an economy it believed shrank in the first quarter were not enough to warrant a cut.