- The South African central bank (SARB) today decided to cut its key policy rate by another 100bp, bringing it down to 7.50% in line with our expectation.
Details
The South African central bank decided at its Monetary Policy Committee (MPC) meeting today to cut the key policy rate by another 100bp, bringing it down to 7.50%. At the same time it cut the prime lending rate to 11.0%.
Assessment and outlook
The SARB’s governor Tito Mboweni, in the statement that accompanied the rate announcement , said that the widening of the domestic output gap represents downward pressure on the inflation outlook, and that the downward trend is expected to continue over the long term. However, in the near term, inflation will decline only moderately. Mboweni said that there are still some upside risks to the inflation outlook such as electricity prices.
All in all the statement was rather dovish suggesting that the central bank would deliver yet another aggressive 100bp rate cut. But what was interesting were the last comments from Mboweni when he said that given the stickiness in inflation, the mood in the committee is not for further significant cuts; looking at action taken so far and their full impact going forward could give reason to pause. Taking into account these last comments it appears that South Africa is probably done with large rate cuts, and in the coming months it may deliver only a 50bp rate cut. That could come as early as in June. After that we could talk about the end of the easing cycle.
