South Africa’s Federal Reserve is set to shrug off a sharp slowdown in inflation and cut interest rates by just a modest quarter of a percentage point, as new risks emerge to its outlook.
All 20 economists surveyed by Bloomberg expect Governor Lesetia Kganyago to cut the interest rate to 7.75% from 8%, when he announces the Monetary Policy Committee’s decision after 3pm at a north Johannesburg briefing.
The split vote projection leans toward all six members of the committee supporting cautious action.
While annual inflation slowed to 2.8% in October, putting it below the central bank’s target range of 3% to 6%, it is likely to shrug off that temporary decline, said Elna Molman, head of macroeconomic research at Standard Bank Group Ltd. in South Africa. Africa. It expects a cut of 25 basis points.
The value of the rand, an index of emerging market currencies, has fallen by about 3% against the dollar since Donald Trump won the US election on November 5.
Investors are betting that his policies on tariffs and tax cuts may lead to the Fed cutting interest rates less than expected and this may keep the US currency strong, which is bad news for South Africa because it makes its imports more expensive, adding to domestic price pressures. .
Johan Els, chief economist at Old Mutual Group, said the MPC may “highlight the risks of the incoming new administration in the US, and the policy risks around that, in a big way”.
The MPC will also be concerned about negative sentiment towards emerging market assets, after Russia’s war with Ukraine entered a dangerous new phase this week when Kiev forces carried out strikes on a border area in Russia using Western missiles.
Koketsu Mano, chief economist at FNB, said the committee would not think “the inflation story has completely disappeared, so they will be cautious about their implementation of interest rate cuts.” “Gradual is better than too hasty.”
