Interest Rate Cut Expected at MPC Meeting

Strategic Insights -

Debt experts and economists believe that an interest rate cut of 25 basis points is likely when the Monetary Policy Committee (MPC) meets on Thursday, citing Statistics South Africa's announcement that CPI inflation edged up slightly from 2.7% to 2.8% in April. Reza Ismail, head of bonds at Prescient Investment Management, and Casey Sprake, an economist at Anchor Capital, are among those expecting a cut, citing market pricing and the potential for modest easing in the medium term.

Key Takeaways:

  • Reza Ismail expects a 25 basis point repo rate cut at the May 29th MPC meeting, citing market pricing and expectations of modest further easing over the medium term.
  • Casey Sprake also expects a 25 basis point cut, citing real interest rates remaining in restrictive territory and the likelihood of a third rate cut later in 2025 remaining evenly balanced.
  • Benay Sager, executive head of DebtBusters, believes a rate cut would be beneficial for consumers, particularly those paying for assets like financed vehicles and homes.
  • Neil Roets, CEO of Debt Rescue, thinks the door to a 25 basis point cut is now more open, especially with inflation falling to just 2.8%, but notes that the reality on the ground is far more sobering, and a 25bps cut would result in a saving of just R254 per month on a R1.5 million bond.
  • Professor Raymond Parsons believes there is now a strong case for the MPC to resume its interest rate-easing cycle, by another 25 basis points, which would be good for business and consumer confidence.

Statistics:

  • CPI inflation edged up slightly from 2.7% to 2.8% in April, according to Statistics South Africa.
  • The JIBAR rate is at 7.45%, and the Forward Rate Agreement (FRA) is at 7.26%, according to Reza Ismail.
  • The term structure of FRA rates from 1x4 to 21x24 remains anchored within the 7% range, indicating expectations of modest further easing over the medium term, according to Reza Ismail.
  • The Quarterly Projection Model (QPM) path implies a gradual and conditional easing trajectory contingent on inflation remaining anchored near the midpoint and downside risks to growth not materialising in a disorderly fashion.

Sources:

  • Statistics South Africa [www.statssa.gov.za]
  • www.businessreport.co.za (article, no date)