SARB seen cutting rates by 25bps

The South African Reserve Bank is set to make a crucial decision as all eyes turn to Governor Lesetja Kganyago ahead of the Monetary Policy Committee meeting. The consensus forecast suggests that the Reserve Bank's monetary policy committee will cut the repo rate by 25 basis points to 7.75 per cent. This decision comes in light of the significant easing in price pressures across various sectors. CNBC Africa hosted a discussion with Hannah de Nobrega, Economist at Prescient Investment Management, and Johann Els, Chief Economist at Old Mutual, to shed light on the expectations surrounding the rate cut. Hannah de Nobrega highlighted the favorable position of the Reserve Bank in light of plummeting inflation rates. She noted that the bank has successfully tackled the high inflation rates from earlier in the year, which stood at 7 per cent, and brought them down to a mere 2.8 per cent. This impressive feat has led to expectations of a 25 basis points cut being priced into the markets. De Nobrega mentioned that while the Reserve Bank could consider a larger cut of 50 basis points aligning with the new inflation band target of 3 per cent, a more cautious approach with a gradual cutting cycle is also plausible. Johann Els supported the notion that the Reserve Bank has the room to make a 50 basis points cut given the significant easing in price pressures seen across different sectors. He emphasized the window of opportunity available and advocated for a more aggressive stance to further stimulate the economy. However, he acknowledged that the bank might opt for a 25 basis points cut in a risk-averse move, considering potential policy impacts from the US and the slow uptick in inflation. The discussion also delved into the implications of US policies on the South African economy. Els underscored the need to closely monitor the policy decisions taken in the US, such as trade tariffs and tax cuts, and their potential inflationary impact. De Nobrega echoed the sentiment, stating that while South Africa is well-positioned for growth currently, external factors like US policies could introduce inflationary pressures. The balancing act between domestic and global considerations plays a vital role in the Reserve Bank's decision-making process. Looking ahead, the conversation explored the state of the South African economy, with De Nobrega highlighting the conducive environment for growth. With inflation levels at record lows and interest rates expected to decrease, companies are poised to reinvest and drive economic expansion. Els emphasized the importance of smart investment strategies amidst the changing interest rate landscape. As the Monetary Policy Committee meeting looms, speculation rises on the rate cut decision. De Nobrega and Els provided insights into potential questions for Governor Kganyago, focusing on inflation targets and global risks. The deliberations underscore the intricate balance the Reserve Bank must maintain between domestic economic conditions and external uncertainties. With global factors like US policies looming in the background, the Reserve Bank's decision today will shape the economic trajectory for the coming months.