The fact that two dovish members of the Reserve Bank’s monetary policy committee voted to cut the repo rate last week is the first sign in seven months of “holds” that the Bank is nearing the start of a rate-cutting cycle.
The markets expect inflation to continue to unwind, and inflation expectations to fall in tandem, paving the way for the first 25 basis point cut in September, potentially followed by at least two more, to take the repo rate down to 7.5% by the end of January 2025.
The prospect of easing is due in large part to the formation of the government of national unity (GNU), which has spurred capital inflows, a lower country risk premium and a stronger rand.
How different it would be had the ANC chosen to partner with the EFF or MK Party
How different it would have been had the ANC chosen to partner with the EFF or MK Party instead of a coalition of the moderate. Instead of anticipating an imminent start to the rate-cutting cycle, we could have been contemplating a rand and fiscal crisis that would have likely forced the Bank to hike rates.
So, while the economy will have to endure restrictive monetary policy for at least two more months, the country is at last headed in the right direction — and the more the GNU can provide policy certainty and broaden reforms, the more growth and confidence will revive.
Of course, that rates are finally set to come off their 15-year highs will be cold comfort to those pushed into debt distress. But at least there really is light at the end of the tunnel. Exhale slowly.
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