BofA sees SARB rate cuts from Jan 2025

USD/ZAR is firmer climbing to a 10-day high of 18.2425 even after Bank of America analyst voiced that the SARB is likely to keep interest rates on hold this week, and that any rate cut is dependent on improvements in the near-term domestic inflation outlook, further declines in inflation expectations for Sept surveys, and the ZAR remaining strong around the the 18/USD mark, while Fed rate cuts are baked in for Sept.

BofA baseline is considered as more hawkish, with the SARB expected to ease rates in 2025 after the Fed begins its rate cut cycle, but BofA noted that if the Fed beings cutting in Sept, they see two SARB rate cuts in Sept and Nov, but they mainly expect to see the first 25bps rate cut in Jan 2025, followed by reductions of the same magnitude in Mar, May & Jul. BofA also sees the SARB pausing their easing cycle once the benchmark has been lowered to 7.25% by mid-2025.

BofA also sees inflation averaging around 5% in 2024 and 4.7% in 2025 and 2026 (via Bbg).

Recall, the South African Reserve Bank left interest rates steady at a 15-year high of 8.25% for a sixth consecutive meeting. The decision was backed by all six members. Governor KGANYAGO said in his post-briefing statement that "the committee remains concerned that inflation expectations are elevated." He added "although the MPC assesses the inflation forecast risks to be broadly balanced at present, high inflation expectations require that we deliver on our target sooner rather than later, to re-anchor expectations."

This comes after S. Africa's inflation met the f/c and remained steady at 5.20% y/y in May, while m/m figures met the f/c and eased to 0.20% from 0.30% prior. Core inflation remained steady at 4.60% y/y missing the f/c of 4.50% y/y, while meeting the f/c and easing to 0.10% m/m from 0.20% m/m prior. The data increases the likelihood that the central bank will keep borrowing costs on hold.

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