South Africa’s annual inflation rate fell in March to its lowest level since June 2020, primarily driven by an 8.8% reduction in fuel prices and a moderated rise in education fees.
Headline consumer inflation eased to 2.7% year-on-year from 3.2% in February, below the 2.9% expected by economists polled by Reuters, and outside the South African Reserve Bank’s (SARB) 3% to 6% target range.
This unexpected drop in inflation has led to increased speculation that the SARB may consider reducing interest rates in its upcoming monetary policy meeting. Analysts suggest that the central bank could lower rates to support economic growth, especially in light of global trade challenges and domestic economic conditions.
Despite the favourable inflation data, SARB officials have expressed caution. Governor Lesetja Kganyago has highlighted potential risks, including global trade tensions and domestic price pressures, which could influence the central bank’s decision-making process.
According to Samuel Seeff, chairman of the Seeff Property Group, the news is the clearest indication that the Reserve Bank needs to cut the interest rate without further delay.
Seeff, reiterating his call that the SARB missed the opportunity to cut the rate by at least 25bps in March, says a vital economic boost is now needed.
The rising oil price was a major factor in driving up the interest rate, and it has now declined by more than 22% compared to the same time last year (Brent Crude Oil at $68.44 vs $88.22 in April 2024 per tradingeconomics.com) despite the tariff-wars, he said.
The rand has also again stabilised at around R18.58, after the renewed volatility driven by the fears around stability of the GNU and the VAT debacle, providing further impetus for the Bank to cut the rate.
“The weak economic growth outlook must now weigh on the bank to cut the rate, especially in view of the IMF (International Monetary Fund) announcing that it has cut its predicted growth to just 1% – from 1.5% previously, said Seeff.
This clearly signals the urgent need for the SARB to step in to provide relief to consumers and the economy, he said.
The current interest rate level is still 100bps higher compared to the pre-pandemic rate in January 2020, and it is hampering the economy, the property expert said.
Seeff said the lower interest rate in 2020 showed the tremendous boost to the economy and property market over that period. “We can now clearly see the inverse effect of keeping the interest rate unnecessarily high for so long since with basically almost no economic growth of just 0.6% for the last two years respectively.”
He said that there is no need for the bank to wait. Seeff said it can in any event always step in if the need arises as was the case during the pandemic.
However, to restrain the economy and property market with a high interest rate is clearly having an inversely negative effect on the economy, and by extension, the property market.
Seeff said amid swirling global geo-political instability and tariff-wars, is a need for stability, and a vital economic stimulus.
“Investors need to know that SA is politically and economically stable with a focus on GDP growth and job creation. Being more responsive and providing an interest rate cut will boost confidence and provide a much-needed growth boost.”
Prior to March, the bank had implemented three rate cuts since September 2024.
“I don’t think the Reserve Bank will cut rates in May at the next MPC meeting, despite conditions dictating that they should,” said Old Mutual chief economist Johann Els. “I think the Reserve Bank will remain wary of global risks.”