Good News for Borrowers and Businesses as MPC Meets on Interest Rates

The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) meets today to decide whether to cut interest rates.

The meeting takes place against a backdrop of renewed economic optimism following last week’s highly successful mini-budget, which briefly pushed the rand below R17 for a dollar and triggered South Africa’s first credit rating upgrade in two decades.

Several indicators suggest that the prospects for a rate cut are good.

Data released yesterday by Stats SA showed that inflation was 3.6% in October, keeping it near the Reserve Bank’s new target of 3% (and well within the one percent margin around that target). The strengthening of the rand over the past 6 months has also eased concerns over imported inflation. Locally, weak consumer demand continues to dampen the inflationary outlook.

Global conditions are similarly supportive. Interest rates have softened in major economies, creating room for the Reserve Bank to consider a cut, whilst keeping a competitive interest rate differential with leading economies.

A rate cut would offer immediate relief to households struggling with debt costs and would lower borrowing costs for businesses, improving access to capital for expansion at a time when the government is attempting to revive growth, boost confidence, and sustain momentum behind recent fiscal and structural reforms.

Further in support of a cut is that Reserve Bank Governor Lesetja Kganyago has hinted that a series of rate cuts could be possible over the coming year. Finance Minister Enoch Godongwana has suggested that the new 3% inflation target will allow lower interest rates over time.

Speaking to The Common Sense, Frans Cronje said the underlying conditions support a cut. He noted that “we have told clients to pencil in a 25 basis points cut for today as the balance of forces, and especially the welcome reception of the mini-budget, more than justify a cut decision. The only question is whether the 3.6% print on the inflation rate yesterday will cause the MPC to hold as the number is perhaps a little bit higher than had been hoped for, however our call is for a cut and that this will be a welcome boost for the South African economy.”