South African Bank, CBN expected to cut interest rates

The South African Reserve Bank (SARB) and the Central Bank of Nigeria (CBN) may cut their benchmark interest rates at their next meetings.

The South African Rand strengthened on Thursday after the U.S. Federal Reserve cut its interest rates, trading at 17.4670 against the dollar, about 0.4 per cent stronger than its previous close, according to data from the SARB.

The South African Reserve Bank will announce its decisions after the meeting today, while the Central Bank of Nigeria will hold its monetary policy meeting next week Monday.

Maarten Ackerman, chief economist and advisory partner, at Citadel Investment Services, stated that the recent decline in the inflation rate should motivate the SARB to cut interest rates.

“Our inflation is below target for the first time in three years. The Rand is also doing well, and the Reserve Bank won’t just look at the inflation rates today, but also at what will happen going forward. These factors that I’ve highlighted suggest that we are probably in for better numbers, so they may start thinking of cutting the rates,” he said in an exclusive interview with CNBC Africa.

South Africa’s inflation rate fell more than expected in August to its lowest since April 2021.

Headline consumer inflation fell to 4.4% year-on-year from 4.6% in July, below the 4.5% midpoint of the South African Reserve Bank’s target range.

Meanwhile, analysts expect the CBN to cautiously approach the rate decisions at the 297th Monetary Policy Committee meeting next week.

Nigeria’s headline inflation slowed to 32.15 per cent in August from 33.40 per cent in July due to the harvest season improving the food supply.

However, the recent hikes in petrol prices, which may aggravate inflation, have posed a challenge for the MPC.

Ayodele Akinwunmi, senior relationship manager, Corporate Banking Group, FSDH Merchant Bank, earlier told BusinessDay that it is good news that inflation dropped for two consecutive months but it may not still justify a change in monetary policy stance.

The inflation rate of 32.15 per cent is still very high, and changing the monetary policy stance may be too soon. Also, there is a high tendency that the inflation number will reverse the trend and start an upward movement from September 2024 because of the adjustment of petrol pump prices across the country.

“Given the recent inflation trajectory, we anticipate that the Monetary Policy Committee will likely maintain the benchmark policy rate at 26.75 percent in its next meeting which is scheduled to be held on the 23rd and 24th of September, 2024,” analysts at Coronation Merchant Bank Limited said.