Market News

By Ntando Thukwana

(Bloomberg) -- South African inflation expectations fell to the lowest level since 2021, boosting the case for policymakers to continue lowering interest rates.

Average inflation expectations two years ahead — which the central bank’s monetary policy committee uses to inform its decision-making — fell to 4.6% in the fourth quarter from 4.8% previously, according to a survey released on Thursday by the Stellenbosch-based Bureau for Economic Research. Those for this year and next also slipped to 4.6% and 4.5% respectively.

This signals that the Reserve Bank has been successful in its goal of anchoring inflation expectations around the 4.5% midpoint of its target range, Elna Moolman, Standard Bank Group Ltd.’s head of South Africa macroeconomic research, said in an emailed voice note. 

Data on Wednesday before showed South Africa’s annual inflation rate edged up to 2.9% in November from 2.8% the month before. Food-price growth, which moderated to a 14-year low, helped tame overall price pressures.

The “data, which reflects a generally benign inflation picture, vindicates the Reserve Bank’s decision at recent meetings to start cutting interest rates and also signals that there is likely scope for the reserve bank to continue cutting interest rates into 2025,” Moolman said.

The MPC has cut borrowing costs by 50 basis points to 7.75% since starting to ease policy in September. Forward-rate agreements capturing the next interest-rate decision on Jan. 30 and used to speculate on borrowing costs, are fully pricing in a 25 basis-point reduction and see a slight chance of a bigger move.

Central bank Governor Lesetja Kganyago signaled this week that officials will proceed carefully on interest-rate adjustments, given the unpredictable outlook for the global economy. A combination of factors including higher domestic fuel prices, a weaker rand and concerns about US President-elect Donald Trump’s trade policies are all adding to a murkier inflation outlook. 

--With assistance from Colleen Goko.

(Updates with analyst comments in third paragraph.)