Reviewing of S.Africa’s 2024 monetary policy direction

South Africa's Central Bank, the SARB, has hinted at the possibility of no rate cuts in 2024 due to slower disinflation pace than anticipated. Annabel Bishop, Chief Economist at Investec, provided insights on the SARB's biannual review of its monetary policy stance. The monetary policy review reflects on the past six months and suggests a cautious approach to interest rate cuts until inflation reaches and sustains the target of 4.5%. With inflation still elevated and expected to remain above the target until September, the likelihood of rate cuts in the near future seems slim. Investec's House view initially expected a rate cut in September but is now leaning towards a potential cut in November, although the risk of no cuts this year remains high. The bumpy trend in inflation moderation poses challenges as inflation has been slow to come down. While overall inflation is anticipated to continue moderating this year and next, the journey down to the midpoint of 4.25% remains uncertain and volatile. The economic outlook for South Africa in 2024 is influenced by various factors, including inflation dynamics, supply constraints, and geopolitical tensions. The lack of load shedding in recent months has improved electricity supply but raises concerns about infrastructure maintenance and potential future disruptions. Any delay in reforms and maintenance could impact growth in sectors heavily reliant on consistent power supply. Notably, an interest rate cut towards the end of the year is unlikely to significantly alter GDP growth forecasts, as its effects typically have lagged impacts over several quarters. Additionally, supply constraints, such as freight and electricity issues, remain crucial determinants of GDP growth prospects. Collaborative efforts between businesses and government are essential to mitigate supply chain disruptions and enhance efficiency across sectors. Global factors, including geopolitical tensions, supply constraints, and weather conditions, also pose risks to South Africa's growth trajectory. The strength of the Rand is intricately linked to US interest rates, and any delays in US interest rate cuts could negatively impact emerging market currencies, including the Rand. A potential US interest rate cut cycle is expected to bolster emerging market currencies and investor sentiment, possibly leading to Rand strength in the coming year. The upcoming South African elections add another layer of uncertainty, with coalition dynamics playing a significant role in shaping the political landscape. Poll results suggest a wide range of possible outcomes, with the ANC likely to remain the largest party and form coalitions with smaller parties. Market participants have factored in the potential impact of different coalition scenarios on financial markets, emphasizing the importance of stable political outcomes for economic stability. Despite past inaccuracies in polling data, the upcoming elections hold significant implications for South Africa's economic and political landscape in 2024.