Goldman Sachs: S. Africa inflation could undershoot expectations

Goldman Sachs forecasts South Africa’s inflation to average 3.3 per cent in 2024, significantly below the central bank’s 4 per cent projection and the 4.2 per cent median estimate of Bloomberg’s surveyed economists.

The bank’s economist Andrew Matheny attributes this to a “large negative output gap” driving disinflationary pressures.

Goldman’s outlook suggests further optimism on interest rates, anticipating an additional 125 basis points in rate cuts during the ongoing easing cycle. This surpasses the 75 basis points expected by most economists and the 50 basis points indicated by the central bank’s staff model.

The South African Reserve Bank recently lowered its benchmark interest rate to 7.75 per cent after inflation slowed to 2.8 per cent in October. Despite the decline, Governor Lesetja Kganyago emphasised caution due to economic uncertainties.

Goldman also views the recent 4 per cent slump in the rand, driven by concerns over US trade policies under Donald Trump’s presidency, as excessive, citing limited direct impact on South Africa.

Attribution: Reuters

Subediting: M. S. Salama