BofA: “South Africa: All change, not done hiking”

Bank of America's latest insights suggest that South Africa might see another interest rate hike from the South African Reserve Bank, despite inflation decelerating and falling back into the target range of 3 to 6 percent. Tatonga Rusike, Sub-Saharan Africa Economist at Bank of America, explained that while headline inflation is expected to reach around 5.2 percent in the near term, factors such as higher fuel prices and potential pass-through effects on food prices, particularly dairy and chicken due to shortages from the bird flu outbreak, are contributing to the upward pressure. As a result, Bank of America anticipates a 25 basis point hike in the next month's meeting. In addition to domestic factors, global risks are also playing a role in shaping Bank of America's forecast. Rusike mentioned that due to higher inflation levels than expected, both locally and globally, and the anticipation of another hike from the Federal Reserve, it is unlikely that South Africa will start cutting rates any time soon. The narrowing interest rate differentials and persistent inflation challenges indicate that the cutting cycle might be delayed but not discounted. Beyond the interest rate forecast for South Africa, the conversation also touched on the recent proposals at the IMF World Bank meetings regarding debt restructuring for African countries facing debt distress. Bank of America acknowledges the debt burdens faced by countries like Zambia and Ghana and highlights the importance of pursuing macro policies to readjust debt while seeking support from international financial institutions like the IMF and the World Bank. The recent progress with Zambia reaching an agreement with official creditors and pursuing debt relief signals a positive step in the right direction. Bank of America expects similar initiatives to be extended to Ghana as well, with both countries participating in IMF programs to aid in their adjustment processes. When discussing potential outlooks for countries in the region, Bank of America sees positive signals coming from Nigeria, particularly in the oil production sector, which could lead to potential upgrades in the ratings outlook. Despite concerns around South Africa's economic performance and fiscal weaknesses, Bank of America believes there is enough cushion to maintain the BB- rating level. The upcoming MTBPS budget might bring challenges, but Bank of America views the existing economic outlook and fiscal path as well embedded into the current ratings. Overall, the forecast from Bank of America suggests a dynamic landscape for South Africa, influenced by both internal and external factors, with inflation, interest rates, and debt restructuring playing significant roles in shaping the country's economic trajectory.