Consumer inflation in South Africa dropped to its lowest in four years in October, setting the stage for another interest rate cut by the South African Reserve Bank (SARB) this week.
Statistics South Africa (StatsSA) said that the consumer price index (CPI) increased by 2,8% in the 12 months to October 2024.
“This represents a sharp decline from 3,8% recorded in September. October’s print is the lowest since June 2020 (during the Covid-19 pandemic) when the rate was 2,2%,” StatsSA said.
The reduction in CPI will be one of the factors that impact the Reserve Bank’s decision to cut interest rates on Thursday.
Several analysts and experts have said that it is but an all-gone conclusion that the bank’s Monetary Policy Committee (MPC) will cut the interest rate tomorrow. It is expected to cut the rates by 25 basis points.
During the last MPC announcement in September, the central bank decided to reduce the rate by 25 bsp, from 8.25% to 8% and the dropping the prime lending rate from 11.75% to 11.5%.
If the SARB continues this path, as predicted by a number of analysts, then the repo rate could drop by a further 25bps to 7.75% and the prime lending rate would drop to 11.25%.
What do experts say?
Nedbank believes that the Reserve Bank will give South Africans another interest rate cut before the festive season.
“We expected a 25-bps cut as inflation continues to undershoot the SARB’s 4.5% target, and the inflation outlook remains relatively subdued,” the bank said.
Nedbank further noted that there are some risks and inflation is still a problem for the country.
“However, upside risks to the inflation outlook increased somewhat over the past month,” Nedbank said.
Thys van Zyl, CEO of Everest Wealth agreed with Nedbank and said that there is a very high chance that the MPC will cut interest the interest rate on Thursday.
Another interest rate cut could be on the cards this week, and again in January, he added.
Van Zyl noted that it was important to watch the US and specifically, if Trump places higher import tariffs next year on emerging markets like South Africa.
This may increase inflation in SA, Van Zyl noted.
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