Oxford Economics: Economic data to watch

The South African Monetary Policy Committee is set to convene this week for the first time since the establishment of the Government of National Unity. Economists are anticipating that the South African Reserve Bank will maintain the repo rate at 8.25 per cent on Thursday. However, FRA markets closed last week with a 40 per cent chance of a rate cut this week. These expectations have been influenced by various factors, including the recent fluctuations in the Rand's value. To gain more insights into the situation, Jee-A Van Der Linde, Senior Economist at Oxford Economics Africa, provided valuable perspectives on the potential rate cut and the economic outlook for South Africa. While Oxford Economics aligns with the market consensus in expecting no change in rates at the upcoming meeting, there are differing opinions within the market that a rate cut could be a possibility. The strengthening of the Rand post-election, coupled with an improved inflation outlook, has led some market participants to consider the feasibility of a rate cut this week. However, Van Der Linde expressed caution about an immediate rate cut, emphasizing the need for a comprehensive assessment of various economic factors before implementing such a decision. Despite global trends indicating a shift towards interest rate cuts, Van Der Linde highlighted the need for prudence and a careful approach by the South African Reserve Bank. The potential risks associated with sudden economic changes, such as the recent events involving President Trump and the strengthening of the US dollar, are being monitored closely, although they have not altered the current rate cut projections significantly. The trend of declining inflation in the US and the possibility of a September rate cut in the country have not significantly impacted the forecast for South Africa at this stage. Oxford Economics maintains a view that the South African Reserve Bank will proceed cautiously, considering its track record of managing market volatility and inflation fluctuations effectively. The anticipation of a rate cut, possibly in November, is based on the expectation of a gradual decline in inflation towards the target band midpoint of 4.5%. Factors contributing to this projected decrease include recent fuel price reductions, upcoming favorable base effects, and the overall stabilization of the economy post-election. However, potential risks related to food prices, particularly in the maize sector due to adverse weather conditions, are acknowledged. Despite these challenges, the overall outlook suggests a gradual easing of monetary policy in response to the changing economic landscape. The consumer demand side remains under pressure, as evidenced by the first-quarter GDP figures, signaling the need for policy adjustments to support economic growth. In summary, while the possibility of a rate cut remains on the horizon, a cautious and data-driven approach is recommended to ensure sustainable economic progress in South Africa.