Ball in SARB’s court to lower repo rate at next MPC meeting, say economists

Some economists said that the ball in now in the South African Reserve Bank (SARB)’s court to lower the repo rate at the next Monetary Policy Committee (MPC) meeting.

This follows a drop in the November inflation print.

Headline inflation undershot expectations, with a dip to 3.5% in November, from 3.6% in October.

Statistics South Africa (Stats SA) released the latest data on Wednesday, making a case for the MPC to lower policy rates.

The moderation in headline inflation stemmed mainly from more subdued transport costs, which offset a jump in food inflation.

Core inflation, which excludes the volatile food and fuel categories, inched up from 3.1% to 3.2%, remaining low and relatively stable.

Economists at Nedbank said the numbers are encouraging, with the bank confirming that underlying inflation remains muted and stable.

Group head of South Africa macroeconomic research at Standard Bank Elna Moolman agreed.

“More importantly for the next MPC meeting is the improvement that we saw in surveyed inflation expectations in the BER's [Bureau for Economic Research] latest survey done in the fourth quarter of this year, which showed a general and quite marked decline in inflation expectations.”

Average inflation expectations two years ahead dropped to a record 3.7% in the fourth quarter from the previous 4.2% forecast, post the announcement of a lower 3% inflation target.

At the November meeting, the central bank’s MPC lowered the repo rate by 25 basis points to 6.75%.

The next meeting is in January.