South Africa MPC: Analysts expect another rate hike

South Africa's Monetary Policy Committee (MPC) is poised to make a significant decision on interest rates today. Economists and analysts are closely watching the outcome of the two-day policy meeting to determine the direction of lending rates in the country. Andrew Methany, an economist at Goldman Sachs, shared his insights on the possible outcomes of the meeting. Methany expressed his belief that a 25-basis point increase is likely, citing recent developments that have been dovish on the inflation side. Notably, there have been downward surprises in inflation figures, the rand has strengthened against the dollar, and oil prices have slightly decreased. These factors are expected to lead to revisions to both headline and core inflation forecasts for the year. On the activity side, while third-quarter GDP showed strength, it was mainly attributed to one-off factors, with underlying growth still weak. Methany highlighted headwinds such as a slowing global economy and past rate hikes' effects as key considerations for the MPC. He emphasized the diminishing risks to inflation due to global trends and predicted a 25-basis point hike, potentially the last one in the cycle. Looking ahead, Methany suggested a possible pause in the short term with inflation expected to decline steadily. He projected headline and core inflation to reach target levels by the third quarter, with a medium-term outlook favoring rate cuts. Methany's view contrasts with the SARBS, as he anticipates a more benign inflation outlook and envisions a rate cutting cycle starting later this year through early 2025. He attributed this stance to a significant negative output gap keeping demand-side pressures in check. Methany's projection of headline inflation converging with core at around 4% opens up room for multiple rate cuts. Despite challenges in the energy sector and increased costs of doing business, fueled by power cuts, Methany assessed the overall impact on inflation as likely to be disinflationary. He pointed out that the negative effects on confidence and growth are expected to outweigh any inflationary pressures from supply shocks, leading to a more subdued inflation outlook. As stakeholders eagerly await the MPC's decision, Methany's outlook offers a unique perspective on the potential trajectory of South Africa's interest rates. His insights suggest a shift towards a more accommodative monetary policy stance, setting the stage for possible rate cuts in the coming quarters.