Interest rate cuts still on the cards for South Africa
The South African Reserve Bank’s (SARB’s) decision to keep interest rates on hold this week may have come as a surprise and disappointment to some, but economists say the central bank may just be pausing for a breather.
The SARB’s Monetary Policy Committee (MPC) voted 4-2 on Thursday (18 September) to keep the country’s repo rate at 7.00%, with the prime lending rate still set at 10.50%.
The move surprised some market commentators, given that prevailing conditions and key indicators were extremely favourable for a cut.
Consumer inflation for August came in much cooler than expected at 3.3%, the rand has been resilient and even strengthened this week against the dollar, and the US Fed—which typically strongly indicates local moves—cut its rates by 25 basis points.
Despite this, the MPC factored in a much longer-view of local market conditions, flagging risks to inflation in the coming months from international uncertainty and dysfunctional administered prices (like Eskom tariff hikes).
There is also the question of the new (yet to be confirmed) inflation target of 3%, which changes things quite significantly.
According to the Bureau for Economic Research (BER), the outcome of the MPC meeting was in line with market expectations, where two-thirds of economists expected a hold on rates.
Incidentally, two-thirds of the MPC voted for a hold, so it could be seen as an exact match.
But even though the September outcome yielded no movement in rates, it does not mean that rate cuts are off the table.
The SARB itself said that it opted to hold rates so that it could better digest the previous two rate cuts and see how it impacts the markets and economy.
The property sector has also seen it as a “pause” in the rate-cutting cycle, not the end, with further cuts still expected.
Rate cuts still coming
Ahead of the SARB decisions, Invested chief economist Annabel Bishop—one of the more bullish commentators on rates—said that a 25 basis point cut would be coming in 2025.
If not in September, then in November, she said, adding that a cut is urgently needed as the current levels are restrictive and demand is incredibly weak.
The SARB’s own quarterly projection model (QPM) still points to another 25 basis point cut this year—and with only one meeting left, in November, that looks to be it.
Notably, the QPM also factors in a further 50 to 75 basis point cuts in 2026.
According to Nedbank chief economist, Nicky Weimar, everything will hinge on inflation and how the SARB and South Africa adapt to the new target, whenever it is confirmed.
The central bank forecasts a slight upturn in inflation over the near term. Headline inflation peaks at a fractionally higher 4% in Q4 2025, then gradually recedes to 3.2% by the end of next year and down to 3% by the end of 2027.
Weimar said that the SARB will likely look through any peaks in inflation—taking the longer-term view—and keep interest rates on hold.
Nedbank’s own inflation forecast reflects a slightly more significant and prolonged rise in inflation than that of the SARB, but still sees the upturn as “modest and fleeting”.
If South Africa’s good news streak continues—with inflation being benign, the rand strenthening and the Fed continuing its cutting cycle—then it is more likely that more rate cuts will come.
“If these trends persist, a stronger rand, falling maize prices, and subdued fuel prices will dampen the impact of a low base, higher electricity tariffs and rising meat prices on inflation—leading to a shorter and shallower inflation cycle than we currently anticipate,” Weimar said.
“Under these circumstances, there could be space for another rate cut in the near term.”
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