South African Central Bank Set to Turn Hawkish as it Cuts Rates

(Bloomberg) — The South African Reserve Bank is set to lower borrowing costs by another frugal 25 basis points on Thursday while warning that uncertainty around US monetary and trade policies may hinder future cuts.

Most economists in a Bloomberg survey expect Governor Lesetja Kganyago to reduce the benchmark interest rate to 7.5% when he delivers the announcement shortly after 3 p.m. at a press briefing north of Johannesburg. They also foresee the six-member monetary policy committee being unanimous in their decision to cut by the same quantum as they did at two previous meetings.

“Downside surprises to South African inflation, plus the fact that there are very little local inflationary pressures, will convince the bank to cut rates,” said Old Mutual Group’s Chief Economist Johann Els.

Annual inflation has been below the 4.5% midpoint of the central bank’s target range, where it prefers to anchor expectations, since August and quickened less than anticipated last month to 3%.

Even so, Kganyago will probably reiterate the MPC’s concerns about the uncertain outlook because of the lack of clarity on US President Donald Trump’s potentially inflation-spurring trade policies.

“To the extent that the measures taken are inflationary, it could slow down the disinflation process that central banks had so steadfastly worked on since the great inflation of 2022,” Kganyago said last week. There is a risk that “the reduction in the restrictiveness of monetary policy that we had seen over the past year could then be brought to an abrupt halt,” he said.

Since his return to the White House on Jan. 20, Trump has roiled markets with a readiness to use tariffs to advance his America First agenda, strengthening the dollar at the expense of the rand and other emerging-market currencies.

The Federal Reserve’s decision to pause rate cuts on Wednesday to see further progress on inflation following a string of reductions last year and comments by Chair Jerome Powell that officials aren’t in a hurry to lower borrowing costs are also likely to make South African policymakers more circumspect.

Kganyago is “going to come back like a soaring hawk,” said Investec Bank Ltd. Treasury Economist and Fixed Income Analyst Tertia Jacobs. “It’s likely a hawkish cut. The reserve bank will focus on the unpredictability of the global economic and political backdrop, and also the unpredictability of Trump.” 

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