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South Africa Reserve Bank repo rate forecast report November 2020

86% of economists say the South African Reserve Bank will hold the rate but 43% call for a rate cut

Key findings

  • 86% of economists expect the repo rate to hold at the November meeting
  • The panel is split on what the SARB should do, with 57% thinking the rate should hold vs 43% believing the rate should be cut
  • Panel divided on the next rate move: 46% say the rate should decrease and 54% increase
  • 29% of panellists don’t think the rate will increase until 2022

Meet our panel

Carpe Diem Research Services, Independent Economist, Elize KrugerUniversity of the Free State, Senior Lecturer in Banking and Finance, Johan CoetzeeBureau for Economic Research, Chief Economist, Hugo Pienaar
IQbusiness, Chief Economist, Head of Research, Sifiso SkenjanaSTANLIB, Economist, Ndivhuho NetshitenzheAntswisa Transaction Advisory Services, CEO and Chief Economist, Miyelani Mkhabela
University of Cape Town Graduate School of Business, Associate Professor, Sean GosselIntellidex, Head of Research, Peter Attard MontaltoEFConsult, Chief Economist, Frank Blackmore
University of the Western Cape, Professor of Economics, Matthew Kofi OcranInvestec ltd., Chief Economist, Annabel BishopAlexander Forbes, Chief Economist, Isaah Mhlanga
University of the Witwatersrand, Interim Head: WIts Business School, Jannie RossouwEfficient Group, Economist, Dawie Roodt

The South Africa Reserve Bank’s (SARB) Monetary Policy Committee (MPC) looks set to hold the rate on 24 November 2020, according to the majority of 12 economists on Finder’s panel (86%).

However, the panel is fairly well split on what the bank should do. 57% of economists think a hold is the right decision and 43% say the bank should cut rates.

Head of Research at Intellidex Peter Attard Montalto said the MPC should hold. “It is now too late really to cut. They should have reduced rates earlier,” he said.

CEO and Chief Economist from Antswisa Transaction Advisory Services Miyelani Mkhabela said the rate should and will be cut.

“The inflation rate in South Africa slowed to 3% in September of 2020 from 3.1% in August and market expectations of 3.1%, this gives the SA Reserve Bank an opportunity to cut interest rates by 25 basis points, giving all South Africans an additional financial relieve for the 2020 year-end.”

Independent Economist at Carpe Diem Research Services Elize Kruger agreed, believing the bank will and should lower the repo rate by 25 basis points.

IQbusiness chief economist and head of research, Sifiso Skenjana, thinks the MPC will hold but is in favour of a decrease. “Weak economic growth, and lower global growth sentiment, and therefore a likely accommodative global monetary policy should motivate the bank to lower rates by 25 basis points,” she said.

All panellists who thought the rate should be cut said it should be cut by the same amount: 25 basis points.

Should the SARB increase rates?

In the September announcement, the governor said the implied policy rate path of the Quarterly Projection Model indicates no further repo rate cuts in the near term and two rate increases in the third and fourth quarters of 2021. When asked if they thought the next rate move should be an increase, 54% answered in the affirmative, with 46% believing the next move should be downward.

Chief Economist of EFConsult Frank Blackmore is one panellist who thinks the next rate move should be up. “Rates are low and any additional marginal decrease won’t make much of a difference to economic outcomes,” he said.

Other economists argued for a future rate increase due to inflation concerns. Investec’s Annabel Bishop said inflation will rise next year so the next should be up. Similarly, Efficient Group Economist, Dawie Roodt, flagged that CPI will become a problem toward the end of 2021.

University of the Witwatersrand Interim Head of Wits Business School, Jannie Rossouw, also noted that the MPC will need to be guided by the inflation rate. “It seems that the inflation trajectory reached its lower turning point. As long as it stays at these levels, the repo rate can remain unchanged,” he said.

On the other side of the coin is STANLIB economist Ndivhuho Netshitenzhe, who said inflation was not yet a concern.

“Inflation rate is well below the midpoint of the SARB’s inflation target and we see no significant upward pressure in inflation going forward (other than the base effects). That is, underlying demand will remain low for a while (with the output gap remaining wide), preventing any overheating of the economy. Furthermore, US policy rates are also expected to remain lower for longer, removing pressure from the SARB to increase interest rates.”

University of Cape Town Associate Professor Sean Gossel also called out subdued inflation and South Africa’s weak economic conditions as a reason for a cut.

“Inflation is not hav[ing] a significantly negative impact on the country’s decimated economy. Placing a further interest burden on businesses when it is likely that the country has not recovered from the effects of the pandemic lockdowns will prolong the downturn and have significant socio-economic effects.”

What does the future hold?

When asked to cast their eyes forward, the vast majority of the panel was in agreement that the Bank will raise rates at some point in 2021, with only 29% thinking rates won’t increase until at least 2022.

When asked what they think the rate will be at the end of 2021, the median response for our panellists was 3.75%. Jannie Rossouw and Frank Blackmore were the most hawkish, believing the rate will end 2021 at 4.25% while a handful of panellists, including Elize Kruger, Hugo Pienaar, Ndivhuho Netshitenzhe, Peter Attard Montalto and Matthew Kofi Ocran, were more dovish, forecasting the rate to end 2021 at 3.5%.

Is South Africa at risk of a property bubble?

Mortgage applications and grants are at 10-year highs and with rates being so low some might wonder if there’s a chance conditions will create a property bubble. However, only 14% of the panel thinks low rates could create a property bubble, with 86% saying it’s not a concern.

On the topic of property, prices have recovered following a post-COVID dip and our panel believes that trend will continue into mid-2021, predicting that property prices will rise by an average of 3%. Senior Lecturer in Banking and Finance at University of the Free State Johan Coetzee is the most bullish, forecasting the national median property price will rise by 10%, whereas IQbusiness Chief Economist and Head of Research, Sifiso Skenjana, is the only panellist who thinks prices will drop. He’s forecasting a 5% decline.

“I think the property prices will stabilise as the economy continues to digest the medium-term impacts and will likely decline between 5% and 7% towards the end of 2021,” he said.

Matthew Kofi Ocran is expecting a modest increase of 2%. “Price growth will remain below inflation until economic growth recovers. Most probably in 2020,” he said.

Rebuilding the economy

The panel is fairly split on whether the economic reconstruction and recovery plan announced by Ramaphosa will be enough to stimulate the economy, with a combined 43% saying they were either neutral or somewhat confident, versus a combined 57% who said that they were either somewhat or very doubtful.

Dawie said he was very doubtful due to the “fiscal cliff and state inefficiency”. Whereas Sean Gossel, who is also very doubtful, said: “The country has limited capacity to take on debt for stimulus, businesses haven’t recovered from the lockdowns, to appease the unions and retain the tripartite alliance, it is likely that the wage freeze in the MTPS will be weakened and the country will be unable to stem the rising interest costs until we are driven into the arms of the IMF.”

Rossouw is somewhat confident, saying he thinks that the government should look to the private sector for help.

“The government should allow space for the private sector to play its rightful role in the economy. The government does not have the capacity to drive the plan.”

While Bishop, who is also somewhat confident, simply said: “A lot of work is already underway.”

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