MPC reaction from EY's Africa Chief Economist, only mild easing expected in H2

Angelika Goliger, EY Africa Chief Economist:

“Confirming widespread predictions, the Monetary Policy Committee (MPC) members voted unanimously to maintain the repo rate steady at 8.25%. Although inflation is trending downwards, and expected to moderate to 4.5% at the end of 2024, according to the SARB’s forecasts, the MPC remains concerned by inflation expectations which are staying elevated.

"The Governor’s statement also highlighted the risk to inflation due to local challenges and geopolitical uncertainty, and its subsequent impacts on the Rand and supply chains. He emphasized that future decisions will be highly data dependent. Looking ahead, the global interest rate environment in 2024 will be predominantly influenced by the decisions made by the US Federal Reserve. With the trend of disinflation, the US Federal Reserve is likely to execute rate cuts summing up to 100 basis points in 2024, starting in May.

"A similar picture is expected in Europe, with the European Central Bank (ECB) predicted to implement a total cut of 100 basis points in 2024, starting in the second quarter of this year.

"Notwithstanding the global context, South Africa’s MPC is projected to adopt a more cautious approach than the Federal Reserve, with rate cuts estimated to commence only in the second half of the year, which will likely total between 50 to 75 basis points in 2024.”