Economists split on repo rate outlook as inflation cools
Economists have warned that the slight cooling in consumer inflation doesn’t guarantee a lowering of the repo rate on Thursday.
Statistics South Africa said on Wednesday that annual consumer price inflation slowed to 3.3% in August, down from 3.5% in July.
Softer food and fuel prices helped ease the inflation rate.
Economist at North-West University, Waldo Krugell, said most economists expected inflation only to start slowing down towards the end of the year.
“The big question is whether this will influence the Reserve Bank's decision tomorrow on the repo rate,” said Krugel.
“At the moment, it seems like inflation is slightly down, inflation expectations are falling, the rand is relatively strong, and I think a lot will depend on what the US Fed decides.”
The US Federal Reserve is poised to make its first interest rate cut of 2025 on Wednesday.
Markets widely expect a 25 basis point reduction spurred by a weakening employment market.
Sanlam's Chief Economist, Arthur Kamp, said the easing of consumer inflation has raised the odds of a cut in the repo rate when the Reserve Bank’s Monetary Policy Committee finishes its meeting.
However, Kamp believes that relatively higher interest rates will be needed to keep inflation in check.
“In July this year, the Reserve Bank indicated its preference to target a 3% inflation, the lower end of its target inflation. However, low-expectation inflation remains sticky. Low-inflation expectations have been drifting lower at 4.2% for both 2026 and 2027 average inflation expectations.
“Lower inflation increases the real value of government debt. This speaks to the question of sustainability; all these factors need to be considered before finalising a new inflation target.”
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