By Ntando Thukwana.
South African inflation expectations for the next two years edged closer to the 4.5% midpoint of the central bank’s target range, reinforcing the case for interest rate cuts to start this month.
Average inflation expectations two years ahead — which the bank’s monetary policy committee uses to inform its decision-making — fell to 4.8% in the third quarter from 4.9% previously, according to a survey released on Thursday by the Stellenbosch-based Bureau for Economic Research.
Central bank Governor Lesetja Kganyago has repeatedly said the monetary policy committee will only adjust its policy rate, which has been held at 8.25% since May 2023, once inflation is sustainably at 4.5%, where the MPC prefers to anchor expectations.
Cooler expectations add to other positive news that analysts believe will persuade officials to lower interest rates by 25 basis points after their meeting on September 19, cutting South African borrowing costs for the first time since the height of the coronavirus pandemic in 2020.
Factors pointing in this direction include a cooling in price pressures to an annual rate of 4.6% in July, which lifted South Africa’s real, or inflation-adjusted interest rates to an 18-year high.
Widespread expectations that the Federal Reserve will lower US borrowing costs on September 18 are also seen creating space for the central bank to act, by loosening global financial conditions and potentially easing pressure on the rand, and hence on import prices.