(Bloomberg) -- Economists are almost unanimous that the South African Reserve Bank will deliver a 25-basis-point interest-rate cut on Thursday. Almost, but not quite.
The outlier in a Bloomberg survey of 22 economists is Gryphon Asset Management’s Abri du Plessis, who predicts a cut of 50 basis points. While market pricing also points to the SARB lowering the key rate a quarter-point to 8%, Du Plessis believes there’s room for a more aggressive approach.
A stronger rand, lower oil prices and the need to stimulate the economy all argue for a deeper cut by the central bank, says Du Plessis.
Consumer prices have trended lower for five months, with the annual inflation rate slowing to 4.4% in August, compared with 4.6% in the prior month. That’s below the midpoint of the central bank’s target range for the first time in more than three years, and less than the 4.5% median estimate in a Bloomberg survey.
This may be enough to convince central bank Governor Lesetja Kganyago kick off an easing cycle after holding the policy rate at a decade-high for more than a year. The Monetary Policy Committee will announce its decision after 3 p.m. in Pretoria, north of Johannesburg.
“Inflation is under control and coming down nicely,” Du Plessis said before the latest inflation numbers were released. “The oil price is assisting a lot more than everyone expected, and the stronger rand is going to help to keep inflation lower in the near term. Given these factors, I believe inflation over the next two or three months will be better than what was expected just a few months ago.”
The five-year breakeven rate, a market measure of price-growth expectations, hovered around to 4.3% on Wednesday, near the lowest since April 2021. The central bank prefers to peg inflation at the 4.5% midpoint of its 3% to 6% target range.
The rand has has gained 3.3% since the bank’s last meeting on July 18 amid a resurgence of confidence in South Africa’s economy following the May 29 election. Crude oil prices, meanwhile, have dropped 12% in the same period as demand from the biggest consumer, China, wanes.
For Du Plessis, that means the SARB now has an opportunity to shift its focus away from controlling inflation and more toward supporting growth. The nation’s economy staged a fragile recovery in the three months through June, growing 0.4% as household consumption rose.
“With inflation under control, I think the central bank can pay closer attention to South Africa’s growth rate — and that’s where we have a problem,” Du Plessis said. “They’ve got to start helping by supporting the economy.”
(Updates with inflation reading in fourth and fifth paragraphs.)
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