Experts divided on potential interest rate cut as MPC meeting approaches

As the South African Reserve Bank (Sarb) Monetary Policy Committee (MPC) prepares to announce its interest rate decision this Thursday, experts are split on whether another cut was imminent.

Following a series of reductions from September 2024 to January 2025, anticipation builds around the next announcement - with opinions ranging from optimism to caution.

Benay Sager, executive head of DebtBusters, said they were expecting the interest rate to be cut by 25 basis points again this week.

“This expectation is grounded in factors such as global petrol prices remaining stable, which provides a cushion for consumer finances,” Sager explained.

However, he also emphasised the looming pressure consumers face with upcoming electricity price hikes expected in April and proposed value-added tax (VAT) increases that could further strain household budgets.

“We believe there’s additional room for relief,” Sager added. “The Reserve Bank will certainly take these factors into account, especially as consumers have had access - or wish to access - the two-pot withdrawal system, aiming to stimulate the economy before considering any rate hikes later in the year contingent upon international developments.”

Debt Rescue CEO, Neil Roets, conveyed the unpredictability surrounding the Sarb's decision.

“While we have witnessed previous rate cuts providing little relief, the nation's economic environment is fraught with uncertainty,” Roets noted.

He pointed out that proposed VAT hikes could significantly impact inflation, complicating the Sarb's deliberations around rate adjustments.

“The upcoming Consumer Price Index (CPI) figures expected on March 19, 2025, will be instrumental in shaping the SARB's decisions". Roets urged caution among consumers, noting the potential strains posed by rising inflation and taxes.

“Being vigilant and proactive in managing finances is crucial as we navigate these uncertain economic times.”

North-West University Business School economist, Professor Raymond Parsons, said the MPC may decide to keep interest rates unchanged at this meeting.

“Already at its January meeting, the MPC expressed strong concern about new emerging global uncertainties and their implications for the SA economy,” Parsons said.

“Two members of the MPC then already wanted no change at that meeting. Since then, global and domestic uncertainties have become more elevated.”

Parsons added that the MPC may well therefore want to take a ‘wait-and-see’ stance before resuming further small interest rate cuts later in the year.

Lisette IJssel de Schepper, chief economist at Bureau for Economic Research, cautioned that while the SARB’s cutting cycle was initially intended to be shallow, the bank may have reached a plateau in rate cuts. 

“The SARB is particularly concerned about the potential upside risks to inflation, and it’s difficult to argue the global environment has calmed enough to take away some of the potential risks. Indeed, only time will tell by how much, but the VAT hike(s) will be inflationary,” she said.

“Should actual inflation continue to undershoot, inflation expectations remain well behaved as inflation picks up in coming months (which is always the tricky part), we get some windfalls through, for example, lower fuel prices (amid all the global drama, the oil price has come down nicely) and the Fed resumes its cutting cycle, the Sarb may be tempted to cut again later this year.”

BUSINESS REPORT