Bank of America’s latest Fund Manager Survey shows that investors are hitting pause on buying rate-sensitive assets, predicting that the South African Reserve Bank will likely hold rates higher for longer than previously expected.

This points to a significant shift among fund managers, who now see South Africa hitting an interest rate-cutting cycle about three months later than previously expected.

At the time of the previous survey (September), investors had expected the SARB’s Monetary Policy Committee (MPC) to start cutting rates in the first or second quarter of 2024. They now expect this to be firmly in the second quarter, if not later.

This echoes similar sentiments expressed by several local economists, who have warned that the weakening of the rand and heightened inflation expectations for the rest of 2023 mean that the Reserve Bank is likely to keep rates higher for longer.

While investors in the survey generally don’t expect another rate hike to hit, this is no longer a consensus position.

A small percentage of fund managers now believe that another rate hike could happen when the MPC meets in November.

Despite this minority view, however, most investors still expect the next move to be a cut.

“The majority of managers surveyed expect the next repo rate move to be a cut – but a quarter later,” Bank of America said.

Economist warning

Economists have warned that the latest inflation print for South Africa will keep the SARB on edge, increasing the possibility of another interest rate hike next month.

Stats SA published the latest CPI data on Wednesday (18 October), showing a significant jump in headline inflation to 5.4% in September from 4.6% in August.

While CPI remains within the SARB’s target bank of 3% to 6%, the higher inflation print is likely to push the average for the year to 6%, economists say, which may be too close for comfort for the MPC.

The Reserve Bank itself has indicated that it is still actively tracking the local and global inflation numbers – saying specifically that the current ‘target-bound’ inflation numbers are not yet a prolonged certainty.

This means that upward risks to interest rates are very real, should prices lift further above the bank’s targets.

While economists are generally expecting a hold on rates again in November, more voices are taking a dimmer view.

Bank of America’s economists Tatonga Rusike and Mikhail Liluashvili are more certain that the pressures on inflation will result in a rate hike in November.

Luigi Marinus, Portfolio Manager at PPS Investments, said that the latest inflation figures could push the Reserve Bank to hike rates in November.

He noted that in the most recent MPC meeting, three MPC members opted for unchanged interest rates while two members opted for a 25-basis point increase.

“This occurred when the latest inflation prints were 4.7% and 4.8%. The September print of 5.4% makes the likelihood of a rate increase even more likely, even though inflation is within the target band, as the inflation trajectory appears to be increasing,” he said.

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