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- BofA sees an ANC coalition with the DA as more likely than with the EFF, with the latter scenario only likely if President Cyril Ramaphosa were to step down.
- It also expects the Reserve Bank will only start cutting rates in July.
- BofA now sees only 100 basis points of cuts in total - rather than the 125 basis points it predicted previously.
- For more financial news, go to the News24 Business front page.
Bank of America (BofA) Securities says it sees no major policy changes in South Africa after the country's next general election, though it has pared back its rate cut expectations.
Tatonga Rusike, an economist at BofA Securities, said in a call with media on Tuesday that while the run-up to elections on 29 May would likely be "noisy", with polls indicating the ANC would likely suffer its worst-ever performance, coalition options probably mean the status quo on government policy would be maintained.
That's due to SA's opposition being too fragmented to capitalise on the ANC's struggles, as no outright winner would emerge should the ruling party lose its majority, as would be the case in countries dominated by two major political players.
"This is an important election for SA, but we do think, in summary, that there won't be any policy shift," Rusike told journalists in a webinar on Tuesday. "In the event that the ANC would perhaps lose its majority, you would still see the ANC remaining as the biggest political party. The election will be pivotal, but with no policy shift."
The ANC is expected to lose majority support from South Africa's electorate for the first time since the dawn of democracy in 1994, due to disillusionment with endemic government corruption, ongoing load shedding, rampant crime and lack of service delivery. However, as the country's dominant political party, it is still likely to cling to power by forging a coalition with another party, depending on how much support it loses.
BofA said that should the ANC perform badly - which it defined as winning only around 40% of the vote - a coalition with the DA would be more probable than one with the EFF. It said an ANC-EFF coalition could only happen if President Cyril Ramaphosa were to step down.
"Both scenarios look unlikely," said Rusike. "We see no policy shift post-elections."
Fed cuts first
Rusike expects the Reserve Bank won't cut rates at its March and May monetary policy meetings before commencing its cutting cycle in July. However, BofA has trimmed 25 basis points from its cumulative rate cut estimates and now sees only 100 basis points in cumulative cuts rather than its previous prediction of 125 basis points.
It expects these rate cuts to occur somewhere between the third quarter of 2024 and the first quarter of 2025, with the cutting cycle likely to be "quick and shallow".
"The SARB will start cutting perhaps after the Fed," said Rusike, adding that US policymakers will likely commence rate cuts in June. "The SARB will likely wait as it sees Fed actions as an important variable in forecasting global rates. We still assume SARB cuts will start from July."
BofA expects inflation to be back at the 4.5% mid-point of the Reserve Bank's 3% to 6% target rate by end-2024.
Fiscal fears abate
On a positive note, BofA said concerns around South Africa's fiscal deterioration had abated since Finance Minister Enoch Godongwana's February budget speech.
Citing meetings with Treasury director-general Duncan Pieterse, Rusike said government was committed to fiscal expenditure cuts and limited bailouts for state-owned entities, barring the "too-big-to-fail" state companies like Eskom and Transnet.
"The National Treasury has managed to calm market fears about substantive fiscal deterioration," said Rusike. "We've become a lot more constructive on the fiscal outlook when the Eskom support runs out in the 2025 fiscal year."
He added that in the 2026 fiscal year, deficits could ease closer to 4% of GDP, with potential debt stabilisation emerging a year later.
