21
November 2024
SA reserve bank cuts rates by 7.75%, boosting economic outlook
Adriaan Pask
Chief Investment Officer, PSG Wealth
Event
- On 21 November 2024, the South African Reserve Bank (SARB) reduced its key interest rate by 25 basis points to 7.75%, following a similar 25 basis point cut in September. This move is in line with market expectations and brings borrowing costs to their lowest level since April 2023.
• The decision to lower rates was unanimous among committee members.
• The central bank expects output to benefit from several favourable factors, including lower inflation, higher
disposable income, and increased spending from pension withdrawals under the new Two-Pot system.
• South Africa's annual inflation rate has made yet another impressive drop to 2.80%.
• The central bank emphasised that, while inflation is under control in the short term, the medium-term outlook carries significant uncertainty, with potential upside risks
The Impact
- The FTSE/JSE All Share Index rose on Thursday, trading above 85 700 and extending its winning streak to a sixth consecutive session. Retailers were the standout performers, with a notable 4.30% gain. Mr Price saw its shares surge nearly 9%, driven by a 7.10% increase in first-half earnings.
• Shortly after the decision was announced, the rand was trading in the green at around R18.01/$.
• Local bonds came in, with the 5-year and 10-year government notes yielding 8.34% and 9.22%,
respectively.
The Assessment
- In light of the recent rate cuts and with inflation well-controlled at 2.80% and expectations for increased disposable income and pension spending, there are clear opportunities for growth, particularly in consumer-focused sectors and interest-sensitive investments.
• The next SA interest rate decision will be announced on Thursday, 30 January 2025