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You're listening to Strictly Business
Podcast with Lindsay Williams.

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Inflation in South Africa is now below the
bottom of the band.

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And what has driven it lower?

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This is the big question.

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And what is the forecast going forward?

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Now to enlighten us is Vivian Tabra,
Investment Director at 91 in Cape Town.

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It's interesting, isn't it, the whole
inflation story with the backdrop of

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what's going on globally, Vivian, because
to me,

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inflation in South Africa certainly seems
well under control.

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Yes.

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I think in South Africa, we do have
inflation well under control.

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And certainly, we've had inflation
surprising to the downside consistently

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now over the sort of medium term.

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And if we look at what's driving that, I
mean, obviously, we have had until that

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recent spike up, although it has
recovered,

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we have had relative strength in the RAND,
which has helped.

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We've had contained oil prices.

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Those have fallen even lower.

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So that is helping.

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And then on the back of that, we also have
very subdued demand.

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There's just not really...

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that much growth in South Africa.

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So all of those are contributing towards
lower inflation.

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So it's not just a stable RAND and a
fiscal policy.

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It's also to do with the fact that we're
just not buying stuff, to put it crudely.

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Yes, we are.

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I think, you know, the South African
consumer is under pressure.

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If you look at sort of the credit
extension that we have in the country,

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it's very, very subdued.

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So there's just no demand-driven
inflation.

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Right.

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The South African Reserve Bank will
obviously be watching inflation, as it

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always does, plus other things.

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But when it...

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also looks overseas.

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It looks at the US Federal Reserve this
week, keeping rates on hold,

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despite the fact that the market is
expecting three rate cuts this year from

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Jerome Powell and his team.

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The Bank of England cut to four and a
quarter percent also this week.

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That was expected.

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What about the SARB?

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Because I think the markets and market
participants are expecting two cuts this

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year.

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Yes.

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So I think maybe let's just take a little
step back there if we look at what's

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happen to inflation.

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So So what is the SARB going to do is very
much going to be a function of where it

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sees inflation going.

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And as we know, with a very hawkish bias,
where they see the risks.

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So firstly, let's look at inflation.

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So inflation now surprised quite
substantially low, coming in at 2.7% in

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the last print,

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expected to be 2.9.

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And in terms of our own forecasts, we're
looking for inflation to maintain that two

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handle for the next three months

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before then rising modestly.

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So we're looking at it.

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average inflation going forward for this
year of 3.1%.

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Now, the Saab has consistently been higher
than the market,

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and they've consistently been too cautious
on where they think inflation is going to

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be.

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And we think that'll continue to be the
case.

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So, you know, after the last number, their
inflation forecast for this year was

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sitting at 3.4,

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and that's been revised down, as far as we
know, to around 3.4% from what Lisset just

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said.

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That's going to come lower again when we
get to the meeting.

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in the latter part of this month.

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But the key question is, how is the SARB
going to look at that?

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And will they continue to look at what's
happening globally and global uncertainty

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and continue to focus on the risks for

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inflation to be on the upside?

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And, you know, although we think with
given where inflation is, there's plenty

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of room for them to cut already.

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It's certainly not a dead cert that they
are going to be cutting in May.

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And in fact, you know, we're thinking they
might even err on the side of caution

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again and only go in July.

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That's interesting that you say too
cautious.

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Is too cautious in your mind because of
hindsight, the benefit of hindsight,

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or is it because that's the way Lissetia
goes about his business?

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I think it's a little bit of both.

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But I mean, we still, you know, in terms
of inflation forecasts, it has been to the

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downside,

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coming to the downside across all market
participants this year.

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It has surprised lower than that.

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But even in those forecasts before, Before
we had the surprises lower, there was room

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to cut.

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So there is this caution and this focus on
the risks, on what could drive inflation

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higher,

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and very much a focus on what the RAND
could do.

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Okay.

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The South African Reserve Bank is a pillar
of stability, even though it is, in

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certain people's minds,

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a little bit too cautious, a little bit
too hawkish.

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Are you happy with the job they're doing
at the moment, given the backdrop of

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international uncertainty?

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I think international uncertainty does
lead to South African uncertainty, so you

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can understand some reticence there.

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But in South Africa, we have very low
growth, very low credit demand, and they

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do have space to lower.

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So I think, you know, I'm not the only
person in the market.

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There are lots of people here that wish
they had cut earlier, that we could try

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and stimulate demand a little bit,

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because South Africa does need growth and
it does need jobs.

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Do you think that a cut, even if it's only
25 basis points, hopefully it would be 50

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basis points do you think

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It will do what you've just described, in
other words, stimulate growth, because

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there have been occasions in the past when
cutting hasn't stimulated growth.

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It will help stimulate growth.

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I think obviously there are other factors
that have led to downward growth revisions

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this year, but every little bit does help.

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And certainly we do know that the consumer
in South Africa is very much on the

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pressure.

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Given what we've just discussed, Vivian,
what does this mean for fixed income

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investors in South Africa?

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Well, I think in terms of fixed income
investors, we can expect base rates to

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come lower.

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We, together with the rest of the market,
are penciling another two rate cuts.

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If sort of global uncertainty and tariffs
lead to lower growth than is anticipated,

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pushes the US into a recession, then we
could even see a bigger cycle.

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So we see at a minimum those two cuts and
then we see...

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rates being on hold for a fairly
substantial period of time.

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Vivian, thank you very much for your
analysis.

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Vivian Tabor is Investment Director at 91
in Cape Town.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams and

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various contributors and do not reflect
the policy,

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position or opinion of any other agency,
organisation,

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employer or company associated with
StrictlyBusinessPodcast.com.

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Assumptions made on the analyses are not
reflective of the of the position of any

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other entity other than the speaker or the
author.

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And since we are critically thinking human
beings, these views are always subject to

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change,

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revision and rethinking at any time.

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Please do not hold us to them in
perpetuity.