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SARB could cut rates by 125 bps in 2024
The asset management unit of Old Mutual group says inflation is likely to fall back to about 4.5% by the middle of 2024, the midpoint of the South African Reserve Bank’s (SARB) 3% to 6% target range. Photo Unsplash/Eduardo Soares

SARB could cut rates by 125 bps in 2024

Garth Theunissen

Old Mutual Investment Group (OMIG) says South African interest rates could be cut by as much as 100 to 125 basis points in 2024 due to easing inflation and slowing economic growth.

The asset management unit of Old Mutual group says inflation is likely to fall back to about 4.5% by the middle of 2024, the midpoint of the South African Reserve Bank’s (SARB) 3% to 6% target range.

While OMIG says the SARB is likely to wait until after finance mi­nister Enoch Godongwana’s 2024 budget speech to gauge the market’s ­reaction before it begins cutting rates, it believes it may be bold enough to cut before the US Federal Reserve.

“A 100 to 125 basis point is probably a reasonable estimate for rate cuts next year,” Jason Swartz, a portfolio manager at OMIG, said at an in­vestment briefing in Johannesburg last week. “I would probably suspect in small increments of 25 basis points.”

Swartz’s forecast is premised on the bank’s indication that it will look to target a roughly 2.5% real interest rate, which is essentially the repurchase rate minus inflation.

With the repo rate currently at 8.25% and Old Mutual expecting inflation to moderate to about 4.5% by the middle of 2024, that would open the way for 100 to 125 basis points of cuts.

All eyes on the Fed

While most analysts expect the SARB to wait until the Federal Reserve begins cutting rates, Swartz believes the SARB’s decision to begin fighting inflation early by tightening monetary policy may allow it to act earlier than its US counterpart.

“They hiked pre-emptively, which now gives them scope to cut pre-emptively,” Swartz said, adding: “They’re only going to cut if they know the Fed isn’t going to raise rates ... they could cut before the Fed, but they also want to make sure they’re close to when the Fed cuts. They don’t want to cut too early, but I think it is a reasonable assumption for them to cut before the Fed.”

The Reserve Bank has raised the repo rate by 475 basis points to a 14-year high of 8.25% since it began tightening monetary policy in November 2021.

Though inflation eased to below 6% in June 2023, it ticked back up to an annualised 5.9% in October 2023.

However, Swartz said this may have been due to avian flu that caused chicken prices to rise, adding that steep petrol and diesel price cuts earlier in December are likely to see inflation moderate further in coming months.

Pressure on the Reserve Bank to keep rates higher for longer may also have eased after local inflation eased back down to an annual 5.5% in November.

US rates

Expectations have also increased that US rates will be cut in 2024, after Federal Reserve chair Jerome Powell indicated at the central bank’s latest open market committee meeting that monetary tightening in the world’s biggest economy is probably over.

Market bets of a so-called Fed pivot, financial lingo for a shift in the US central bank’s hawkish monetary policy stance, almost immediately surged as punters bet on aggressive rate cuts in 2024.

Financial assets rallied in response, with Treasury yields falling and stocks advancing around the world.

The risk of recession may also sway the central bank’s hand after South Africa’s battered economy shrank 0.2% from the second to the third quarter while about half of South Africa’s industries showed a decline.

A further contraction in the fourth quarter would tip the economy into a technical recession, which is defined as two consecutive periods of negative GDP growth.


OMIG’s rate outlook is partly why it has an “overweight” positioning in South African bonds, an asset class whose price typically moves inversely to rate movements, as the prospect of lower deposit rates can boost the attractiveness of securities that guarantee a fixed coupon payment.

By contrast, OMIG is neutral on local equities and listed property, while being negative on both local and international cash due to the likelihood of monetary policy easing.

“Ten-year bonds are yielding around 11.7% or 11.8%, which is compensating you [for] inflation risk, election risk, sovereign and fiscal risks,” said Swartz.

“I don’t think South African equities will rally without some sort of recovery in commodities.”– Fin24


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