SOUTH AFRICA: Benign March CPI Data Prompts Forecast Revisions

Below-forecast CPI data released yesterday prompted several sell-side desks to revise their inflation projections for this year, while fuelling bets that the South African Reserve Bank (SARB) could reduce interest rates in May. The SARB's next monetary policy meeting will be held on May 29, roughly a week after the publication of the next set of CPI figures on May 21.

• Commerzbank note that the SARB's expectation of a stronger eventual rebound in inflation to the target mid-point of +4.5% Y/Y was one of the reasons why the central bank refrained from further cuts at its last meeting. From their perspective, while yesterday's data increase the odds of a cut in May, the next meeting will be held after the publication of April CPI data, which will carry more weight. For now, they see signs of structural disinflation and pencil in a 25bp rate cut for the next MPC meeting.
• Goldman Sachs revise their inflation forecasts lower on the back of the surprise and now see CPI averaging at +3.3% Y/Y this year (prev. +3.6%) and +4.0% Y/Y in 2026 (prev. +4.3%). They expect the SARB to cut the repo rate by 25bp at its next meeting and forecast a more front-loaded easing cycle, with cuts at consecutive meetings down to a 6.50% terminal rate.
• Investec write that a decline in oil prices has outpaced rand depreciation, keeping their inflation forecast intact. The outlook remains benign, in their view, but the SARB is targeting inflation four quarters ahead (projected at +4.5% Y/Y) and the conviction in this forecast is not high. Invested think that the SARB will probably cut the repo rate in May, while the primary focus will be on the balance of risk assessment.
• JP Morgan think that the SARB is unlikely to cut rates until there is more clarity on trade tensions, despite a constructive domestic inflation picture. They note that the latest SARB Monetary Policy Review and public statements revealed the central bank's hawkish leanings. Against this backdrop, they expect a 25bp rate cut in July rather than May, unless there are rapid changes on the global trade front in the coming weeks.
• Nedbank expect inflation to remain contained going forward, rising slowly off a low base, with the risks to the outlook appearing relatively balanced. They revised their 2025 CPI forecast to +3.6% Y/Y from +3.9% but still expect it to climb to +4.5% in 2026. In their view, there seems to be space for another SARB rate cut if the rand holds at current levels.