South African Inflation Forecast to Fall to SARB’s comfort zone by 2025

Summary

  • Vuyani Ndaba predicts that inflation will go down to 5.0% next year and 4.5% in 2025 based on the median forecasts of 19 economists.
  • The South African Reserve Bank (SARB) seems comfortable with this decline as it remains in their ideal zone of 3%-6%.
  • Jeffrey Schultz, chief economist at BNP Paribas, feels that the chances for disinflation are even higher for the next year.
  • According to predictions, the SARB might cut the interest rate by 25 basis points quarterly, bringing it down to 7.00% by 2025 from the present 8.25%.
  • The South African economy is presumed to grow by 1.3% next year. Power shortages and port-related challenges have suppressed the economic output.
  • Growth of 1.7% is expected in the succeeding year.

Inflation and SARB’s Expectations

Inflation is expected to decrease from an average of 5.8% this year to 5.0% next year and further down to 4.5% by 2025. These forecasts, gathered from an economist poll conducted from December 6th to 12th, keep inflation within the South African Reserve Bank’s (SARB) preferred range of 3% to 6%.

Predictions from BNP Paribas

BNP Paribas’ Chief Economist, Jeffrey Schultz predicts a promising disinflation scenario for next year. He attributes this to easing global supply bottlenecks that influenced core goods prices, and domestic input prices, which already entered a deflationary phase in July. Schultz believes these factors will continue into next year and impact the core goods’ prices.

According to Schultz, the lack of demand in the South African economy is a significant contributor in pulling down inflation. However, he thinks the possibility of SARB’s first interest rate cut happening sooner is relatively smaller. Only two out of seven respondents agreed to this question.

Forecasts on SARB’s Interest Rate Cut and Economic Expansion

Post-May, it’s predicted that SARB will reduce the interest rate every quarter by 25 basis points until 2025. This reduction would bring down the repo rate from its present 8.25% to 7.00% by 2025. The South African economy has a predicted growth rate of 1.3% for next year, growing from this year’s 0.7% prediction. However, power shortages and logistical issues at ports have burdened the economic output.

For the year following, the economic growth is anticipated to reach 1.7%.

These changes in the South African economy and its financial policies can significantly impact forex trading and assets tied to the South African Rand.

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