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South Africa Reserve Bank repo rate forecast report July 2021

97% of economists say that the South African Reserve Bank will hold the rate.

Key findings

  • All but one panellist believes that the MPC WILL hold the repo rate at the July meeting.
  • However, 5% think the rate SHOULD rise, while 16% think there should be a cut.
  • Only 27% believe there will be a rate increase in 2021.

Meet our panel

Carpe Diem Research Services, Independent Economist, Elize KrugerEFConsult, Chief Economist, Frank BlackmoreCiti, Economist, Economist and Head of Research, Gina Schoeman
Efficient Group, Chief Economist, Dawie, Chief Economist, Annabel BishopGordon Institute of Business Science, Professor, Adrian Saville
Stellenbosch University Business School, Lecturer (Economics and Futures Studies), Andre RouxBNP Paribas, Chief Economist, Jeff SchultzJawitz Properties, CEO, Herschel Jawitz
Antswisa Transaction Advisory Services, Managing Partner and Chief Economist, Miyelani MkhabelaRMB Morgan Stanley, Senior economist, Andrea MasiaXesibe Holdings, Managing Director, Ayabonga Cawe
North-West University School of Economics, Professor, Waldo KrugellPam Golding Property Group, Chief executive, Andrew GoldingRMB, Economist, Siobhan Redford
Citadel Global, Director, Bianca BotesAlexander Forbes, Chief Economist, Isaah MhlangaOld Mutual, Chief Economist, Johann Els
Wits Business School, Professor, Jannie RossouwIntellidex, Head of Research, Peter Attard MontaltoBER, Chief Economist, Hugo Pienaar
Fitch Solutions, Head of Operational Risk Research, Chiedza MadzimaTaalnet Institute, Economist, Christopher MasundaDepartment of Economics and Finance, University of the Free State, UFS Business School and Salzburg University of Applied Sciences, Senior lecturer and researcher, Dr Johan Coetzee
Standard Bank, Head of SA economic research, Elna MoolmanFour Rivers, Managing Director, Lebohang Liepollo PhekoCitadel Wealth Management, Chief Economist, Maarten Ackerman
TPN Credit Bureau, CEO, Michelle, Economist, Mike SchusslerUniversity of South Africa, Lecturer, Mzwanele Ntshwanti
Tshwane University of Technology, Senior Lecturer, Mulatu ZerihunSTANLIB, Economist, Ndivhuho NetshitenzheNKC African Economics, Senior Economist, Pieter du Preez
BankservAfrica, Head: Stakeholder Engagement, Shergeran NaidooIQbusiness, Chief Economist, Sifiso SkenjanaFNB, Economist, Siphamandla Mkhwanazi
Stellenbosch University, COO, Stan du Plessis

The July repo rate decision

36 out of 37 panellists on Finder’s South African Reserve Bank (SARB) repo rate forecast report believe that the SARB’s Monetary Policy Committee (MPC) will hold the rate when it meets in July 2021.

However, movement should be on the cards, according to roughly 1 in 5 panellists, with 5% thinking the rate should rise and 16% thinking there should be a cut. Those in favour of the increase think the rate should be lifted by 25 basis points, whereas those in favour of a cut say the rate should be cut by an average of 33 basis points.

Senior Lecturer at Tshwane University of Technology Mulatu Zerihun was the lone panellist who believes a cut is coming, saying:

"Such a slight cut by 50 bps on the policy rate will assist to contain inflation at its target range for the remaining months of the year 2021. In addition, it halts the adverse effects of higher prices for food, electricity, and oil in the country. Moreover, such a slight decline in repo rate will also assist the economy to revive during the current third wave of COVID-19 by motivating investors and consumers."

While managing director at Four Rivers Lebohang Liepollo Pheko believes the rate will hold, she, like Zerihun, thinks the rate should decrease by 50 basis points saying that lower rates are the only way forward.

"Higher interest rates are a counter logical response to a very difficult and sluggish economic environment. Home and business owners need greater support to weather this storm, to reduce repayment terms and for businesses to receive cheaper loan rates to minimise cash flow limitations," Pheko says.

Economist at Taalnet Institute Christopher Masunda also thinks that the rate should be cut but doesn't think the cut should be as deep, thinking that a cut of 25 basis points would suffice.

"Given the fact that the economy is still grappling with the pandemic, a further cut might ignite a significant growth in GDP as compared to the 1.1% growth recorded in the first quarter (2021Q1). Since growth is still constrained and consumer confidence being subdued (-13%), there is less risk of fuelling inflation from the demand side," Masunda said.

Both professor Adrian Saville from Gordon Institute of Business Science and head of operational risk research at Fitch Solutions Chiedza Madzima are in favour of a rate rise, both thinking an increase of 25 basis points is appropriate.

For both Saville and Madzima, the threat of rising inflation is at the heart of their arguments. According to Saville, "Inflation risk is real and rising. SARB mandate is to look after inflation and the purchasing power of the rand. Not to manage growth. Taylor Rule and other models make the case for a rate hike."

Madzima goes into more detail saying:

"The SARB may raise its repo rate by 25bps to 3.75% in the months ahead (2021). At its most recent meeting, the SARB held the rate at a record low 3.50% for the fourth successive time, having trimmed the rate by a cumulative 300bps in 2020. Inflation continues to run hotter, as demand-side price pressures build, fuel prices rise, and modest depreciation of the rand raises import costs. A stronger economic growth rebound in 2021, will also give the SARB scope to shift to a more hawkish trajectory by implementing a small rate hike."

Would a rate cut help struggling consumers and businesses?

We asked our panel to comment on the position taken by the Congress of South African Trade Unions (COSATU) who urged the South African Reserve Bank to lower the repo rate by 50 basis points at the July meeting to help struggling consumers and businesses. In response, only a handful of panellists were in favour of such a move.

Lecturer at the University of South Africa Mzwanele Ntshwanti was in favour of the plan outlined by COSATU saying, "They should also look at relaxing some of the credit regulations to banks to assist struggling households and firms."

Also in favour of the move was the managing director of Xesibe Holdings Ayabonga Cawe, who said, "Household and firm-level balance sheets are in difficult terrain, and with core and headline inflation only hitting the midpoint of the target band by 2023 or so, there is scope for more monetary stimulus."

On the other side of the coin is Old Mutual chief economist Johann Els who thinks that the economy is already on the right track.

"No, no need for further rate cuts. The economy is recovering and will likely post a 5.5% growth rate this year, followed by better medium-term growth. I expect growth to average 2% to 2.5% on average over the years 2022 to 2026 (compared to only 0.8% annual average over the 5 years to 2019)," says Els.

Professor Waldo Krugell of the School of Economics, NWU also thinks that a rate cut isn't the right move positing, "A small repo rate reduction will provide only a little bit of relief, but it would be unlikely to aid the recovery of the economy by much. We need long-run solutions, structural reforms, liberalisation."

RMB economist Siobhan Redford believes that while there is some merit to the stance, ultimately structural issues are the root cause.

"An interest rate decrease at this point would provide further immediate relief to some consumers and businesses for sure, however, as SA's economy recovers, it is its structural constraints that are the greatest barrier to the creation of jobs. For consumers and businesses to enjoy sustainable jobs and demand, it is the structural issues that need to be addressed," Redford says.

A rate rise probably not on the cards for 2021

While the majority of panellists think that the next time SARB will move the rate it will be up (89%), only 27% think that will come sometime this year. About 8% say the rate will rise in September 2021, with a further 19% saying that the rate change will come in November 2021.

The bulk of respondents said that the rate will move upward sometime in the first half of 2022 (54%), an additional 16% think the rate will rise in the second half of 2022 and 3% don't think the rate will rise until 2023.

Of the panellists, 3, including Madzima, Pheko and chief economist from EFConsult Frank Blackmore all say the rate will increase in September of this year, with Blackmore saying he sees this happening "based on long term inflation trends and increasing inflationary expectations".

Peter Attard Montalto of Intellidex was one of the 19% who think the rate won't move until November 2021, because of the "very slow pace of normalisation while real rates remain low." Chief economist at BNP Paribas Jeff Schultz also thinks the rate will move in November:

"We expect the SARB to begin a gradual monetary policy 'normalisation' cycle from November this year. Even though we maintain that the medium-term inflation outlook looks to be well contained, below the SARB's 4.5% target midpoint in 2022 (BNP forecasts 4.2% CPI average next year from 4.5% average in 2021), we believe that the bank will be cognisant of the fact that the output gap is closing and that it would be prudent to begin gradually normalising policy rates so as to ensure inflation and inflation expectations will remain well-anchored at its target."

Both senior economist Andrea Masia of RMB Morgan Stanley and Pieter du Preez senior economist at NKC African Economics think a rate hike is due in the first half of 2022. For Masia, confidence is key, saying, "It is our view that the MPC requires a greater degree of confidence that the economy is in a position to withstand a gradual but steady removal of excess accommodation. We believe we still have reached that point in early 2022."

However, for du Preez, moves over the next 6 months by the US Federal Reserve are the driving factor:
"Inflation has been intensifying over the last couple of months and we expect inflation to moderate somewhat during the remainder of the year. However, with the US Fed expected to start tapering early next year, commodity prices projected to start declining will result in exchange rate depreciation. Moreover, economic activity is forecast to recover. This will give the MPC ammunition to start the hiking cycle."

Director of Citadel Global Bianca Botes is among the 16% who thinks the rate will move in the second half of 2022, saying the condition now isn't right for an upward move.

"High unemployment and low growth are not conducive to a hike. Inflation remains within the target band, as dictated by the SARB mandate," said Botes.

Ayabonga Cawe is the lone panellist who thinks the rate won't see upward movement until 2023.

How long until the South African economy recovers from COVID-19?

South Africa's economy is expected to recover to pre-COVID-19 levels by 2022, according to the latest forecast by the Reserve Bank (SARB). However, our panel is fairly divided on this stance, with 50% believing SARB is correct in their outlook, 44% believing this prediction is wrong and 6% unsure.

As for when our panel thinks things will return to normal, the bulk of the panel (43%), including lecturer at the Stellenbosch University Business School Andre Roux, thinks normalisation won't happen until 2023. When asked why he believes this, Roux said, "The economy contracted by just over 7% in 2020 – it is doubtful whether the GDP will expand by 7% between the end of 2020 and end of 2022."

FNB economist Siphamandla Mkhwanazi is of the same mind, saying, "Considering the very slow re-adjustment in labour markets; constrained energy supply; lack of new investment in productive sectors and the slow vaccine rollout, it's likely that aggregate demand will remain low for longer."

The other large portion of panellists are slightly more confident, with 32% saying the economy will recover to pre-COVID-19 levels by the second half of 2022. CEO of Jawitz Properties Herschel Jawitz and Citi economist Gina Schoeman both fall into this camp. For Schoeman, she believes that the recovery in late 2022 will be because "the 2021 recovery has been firm, supported more by commodity prices than originally expected."

Jawitz believes that South Africa will be able to get back to pre-COVID-19 levels by late 2022 mainly due to the fact that the South African economy wasn't terribly strong in the lead up to the pandemic.

"The pre-covid levels of economic growth were low anyway. I believe we will recover faster than anticipated due to a much faster than anticipated global recovery including high demand for commodities which will support our recovery," he said.

Professor at Wits Business School Jannie Rossouw is the most bullish on the recovery effort for South Africa and thinks the recovery will come in 2021, saying, "Given the sharp decline in economic activity in 2020, there is scope for recovery."

At the other end of the spectrum is Miyelani Mkhabela, managing partner at Antswisa Transaction Advisory Services saying this situation is too nuanced and it's impossible to know when the situation will return to normal.

"The country is experiencing complexities that cannot be measured as to when they will end," Mkhabela said.

In the middle of these 2 is Elna Moolman, head of SA economic research at Standard Bank, who says South Africa will see its recovery efforts see results in 2023.

"Our forecasts imply that 2021 and 2022 economic growth will largely be a recovery to pre-pandemic real GDP (or output) levels. Thereafter, growth would again rather be determined by usual economic factors," Moolman said.

What do future surplus levels hold for SA?

Through the first quarter of 2021, South Africa's current account surplus hit 5% of GDP (R267 billion), the second-largest on record, coming in behind 2020's Q3 record of 5.9% (R297.5 billion). However, our panel doesn't see the future being so bright, saying that the average surplus level will sit at 3.1% for Q2 through Q4 this year.

Surplus levels are expected to decrease as the year progresses. Q2 is expected to see the strongest results with an average surplus of 3.83%, followed by Q3 (3.10%) and Q4 (2.39%).

Chief economist at IQbusiness Sifiso Skenjana says that market conditions played a huge role in the recent surplus record:

"Global supply chain disruptions, as well as high commodity prices, have been beneficially in the current account surplus observed. These are not expected to continue at the same rate and we expect to finish the year into current account deficit territory," Skenjana said.

Efficient Group chief economist Dawie Roodt says commodities are only part of the issue, highlighting, "weak economy (lower imports), strong commodities, and weaker ZAR."

Dr Johan Coetzee, senior lecturer at the University of the Free State, thinks weaknesses in the Rand will reduce surplus levels:

"There will be increasing pressure on our currency amidst the larger economies getting back to some sense of normality. The weaker currency, coupled with our local demand for imports amidst the local economy picking up, should over the next year or so reduce the surplus and gradually move it to a deficit over the medium term," he said.

For economist Mike Schussler, it's due to "high SA export prices. High Oil price but the lower volume of imports due to pandemic..."

Head of stakeholder engagement at BankservAfrica Shergeran Naidoo highlighted similar issues, saying export and oil prices will influence surplus levels this year.

"High SA export prices. High oil price and importation. Lower volumes of imports due to the pandemic. We expect the consumer to recover," Naidoo said.

Is a central bank digital currency (CBDC) a good idea?

The South African Reserve Bank (SARB) is currently looking into the benefits of issuing a central bank digital currency (CBDC) and the majority of the panel is in favour of a CBDC, with 64% backing the idea.

Independent economist Carpe Diem Research Services Elize Kruger and COO of Stellenbosch University Stan du Plessis are both in favour of the move.

Kruger says "SARB should keep up with latest developments and technologies" with du Plessis adding that "this technological development is logical evolution of the payment system."

Investec chief economist Annabel Bishop is the lone wolf against the program stating, "There is no reason to do so and will cost taxpayers money to create it."

The state of the South African economy

Chief economist at Alexander Forbes Isaah Mhlanga, thinks that there is confidence in the South African economy but we're not out of the woods yet.

"The economic recovery is well underway, confidence is building on the back of recent reforms in energy and SAA partial privatisation. However, risks remain from power cuts and slow vaccination programmes. Unemployment will however remain high given slow job growth relative to the growth in the labour markets," Mhlanga said.

For CEO of TPN Credit Bureau Michelle Dickens, the labour market is just one piece of the puzzle for South Africa to get back on track.

"Job recovery and in fact improvement to pre-Covid levels are fundamental to any sustainable future economic recovery. Growing youth unemployment, even pre-Covid, is one of the biggest threats to sustainable economic recovery as this generation loses the ability to become employable and find a career path," Dickens says.

Property price forecasts

Property prices in South Africa's 10 biggest cities are set to increase by an average of 2.83% over the next 6 months, according to 18 of the panellists who provided property forecasts. That's down from the average forecasted increase of 4.66% in Finder's May survey.

On average, Port Elizabeth is expected to increase the most (3.65%), followed by 3.40% in both Durban and Cape Town. Meanwhile, cities like Benoni (1.88%) and Pietermaritzburg (2%) are at the other end of the spectrum.

How will an increase to the interest rate impact sentiment towards buying?

Sentiment towards buying, rather than renting, has reached its highest level since the introduction of the Absa Homeowner Sentiment Tracker, with roughly two-thirds (69%) of the panel saying sentiment will reverse once the interest rate increases.

Both STANLIB economist Ndivhuho Netshitenzhe and Citadel Wealth Management chief economist Maarten Ackerman say rental sentiment will upend once the interest rate increase. Netshitenzhe says "the cost of having a bond is likely to gradually increase from next year which will be a deterrent" whereas Ackerman says that increasing rates will reverse the buying tide "because that will impact future affordability".

Pam Golding Property Group chief executive Andrew Golding disagrees, adding, "interest rates will still be low enough for the current sentiment to continue".

Upcoming Monetary Committee meetings for 2021

  • 21– 23 September
  • 16 – 18 November

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