Hopes for an interest rate cut this year in South Africa — not to mention in the US and other major economies — have steadily dimmed as 2024 has advanced.

In its latest Monetary Policy Review (MPR), the SA Reserve Bank has poured another bucket of cold water — with plenty of ice — over such prospects, pointedly noting that the markets are no longer pricing in a rate cut for 2024.

“Amid setbacks in recent domestic inflation outcomes, along with heightened uncertainty about global disinflation owing to stickiness in services inflation, markets now expect South Africa’s policy rate to remain unchanged this year,” the MPR says.

That’s a big deal. The SA Reserve Bank is ultra-sensitive to the signals from the markets and watches them like a hawk. The upshot is that monetary policy, as the markets expect, is likely to remain unchanged this year.

Inflation and expectations of its direction are simply not getting anchored around the mid-point of the central bank’s 3-6% target range, and the markets are well aware that this is where the bank prefers it to be.

“Despite the present stance, headline inflation has remained above the target midpoint for 36 consecutive months, and expectations held by the public about future inflation have remained well above 5.0%, moving in line with actual inflation outcomes,” the MPR said.

“South Africa’s inflation has fluctuated within the 5-6% range since September 2023. Uncertainty regarding the path back to the target midpoint has risen in recent months as new risks emerged while others materialised.”

South Africa’s Consumer Price Index slowed in March to an annual rate of 5.3% from 5.6% in February. But that is above the midpoint of its target range and there are plenty of risks to the outlook.

Read more in Daily Maverick: SA food inflation slows to 3-1/2 year low but respite likely short-lived

“While food inflation moderated throughout the past year, it remains elevated, largely reflecting domestic idiosyncrasies. The expectation is for food inflation to slow further this year as biosecurity risks recede and load shedding eases somewhat,” the MPR said.

“However, smaller crop projections following the El Niño-related drought over the past summer may pose some upside risk to food prices over the medium term.”

South Africa’s production of white maize is seen as 26% lower this season compared to last year, raising the probability that retail prices for the caloric staple will rise sharply in the months to come.

Read more in Daily Maverick: Crop Estimates Committee slashes SA maize forecast, sees 2024 harvest down 19% as El Niño bites

The next official forecast is due on 25 April and the forecast could get slashed further.

The Reserve Bank also remains concerned about the rand, which recently hit its lowest levels in 2024, at nearly 19.30/dlr. And while the MPR makes no mention of next month’s general election, the political uncertainties around it are bound to keep the rand volatile and on the back foot.

The MPR says that the Reserve Bank forecasts headline inflation to only “ease to the midpoint of the 3-6% target band by the fourth quarter of next year”.

From the end of 2021 until the middle of last year, the MPC raised rates by 475 basis points, taking its repo rate to 8.25% and the prime lending rate to 11.75%. It has since been in a holding pattern.

Expect that pattern to remain in place for quite some time and given the risks — the MPR speaks of “an uncertain and shock-prone environment” — the next move might even be up. DM