South Africans warned to brace for bad news
While many prominent economists and financial groups are anticipating a 25-basis-point interest rate cut today, South Africans are being warned to also brace for the Reserve Bank to hold rates for longer.
The SARB’s Monetary Policy Committee (MPC) will announce its final interest rate decision for 2025 later today, with many expecting one last bit of relief before a longer holding period as South Africa settles into its new 3% inflation target.
Markets have put an 88% chance of a 25bps cut to rates following Wednesday’s inflation data, which again came in slightly lower than expectations.
Inflation was recorded at 3.6% for October, up from 3.4% in September, but lower than the 3.7% market expectation.
Core inflation (excluding food and fuel) is sitting at 3.1%, which is closely aligned to the new official inflation target of 3.0%, which analysts believe is close enough to warrant a cut to rates.
Given that South Africa’s interest rate environment is still seen as restrictive, and the SARB’s own modelling shows room for another 25bps cut, there is an air of confidence that relief will be given.
At the previous meeting in September, the MPC itself was split, with two members voting for a 25-basis-point cut and four members voting for a hold. This could point to a cut coming in the final meeting.
However, this is not a guarantee.
Investec Chief Economist Annabel Bishop noted this week that the SARB may choose to hold rates again, as the central bank has highlighted the need for higher real interest rates to subdue inflation to the new 3.0% target.
While there are no interest rate hikes forecast—ie, South Africa remains in a cutting cycle—the historically hawkish central bank may be hesitant to make any changes that might drive inflation higher and undermine its goals.
This is also the baseline expectation from KPMG’s lead economist, Frank Blackmore, who views market expectations as seeing no change in interest rates at this point.
The main reason is to allow inflationary expectations in the market, enabling businesses and other stakeholders to align with the new target of 3%, within a margin of plus or minus one percentage point.
“For this to happen, interest rates will remain higher for slightly longer. Once the Reserve Bank is confident that inflation expectations are converging around 3%, we can expect a lot more changes,” Blackmore said.
Based on the assumption that inflation remains contained around 3%, South Africans could see a significant number of interest rate cuts follow—but the country has to hit the target first.
Blackmore noted that, with inflation heading higher and expected to still rise before it starts falling sustainably, South Africa is not yet at this point.
Homeowners feel the pain
According to Renier Kriek, Managing Director at Sentinel Homes, South African homeowners and the property industry at large have been bearing the brunt of the interest rate debate.
While the formal adoption of the lower inflation target will bring welcome certainty to policy, it does mean that the SARB’s hawkish, or cautious, policy stance will likely take root.
As a result, Kriek sees the central bank putting the new inflation target above economic growth, favouring short-term pain for long-term gain. Unfortunately, it is households and businesses that will take that pain.
“We have consistently argued for prioritising growth before attempting to crush inflation outright, while the MPC has preferred to anchor expectations firmly around the lower inflation target first,” he said.
“That approach has brought benefits — including reduced long-dated government borrowing costs and a measure of fiscal breathing room — but it has also kept real interest rates uncomfortably high for an extended period. Households and businesses have felt the strain.”
Kriek said that high real interest rates act as a brake on fixed capital formation, discouraging large-scale investment in factories, infrastructure, and productive capacity.
This weighs on growth and jobs, and it has deepened South Africa’s housing supply crisis.
“The country faces an estimated backlog of 3.5 million formal homes, with the poorest households and the so-called ‘gap market’— properties between R250 000 and R850 000 —the most severely affected,” he said.
“Roughly 80% of households are effectively priced out of the formal housing market. This is not only an economic risk; it is a social and political one.”
Ultimately, the MPC will have to weigh the short-term need for lower interest rates against the long-term benefits of credibility associated with its new target, he said.
While some may doubt the chance of a rate cut on Thursday, Kriek said the shift in sentiment around South Africa’s economy, amid persistent constraints and long-standing issues, might present a rare opportunity to strike while the iron is hot.
“A modest 25 basis-point cut would send an important signal. It would offer tangible relief to consumers and businesses, bolster sentiment at a time when reforms are beginning to take hold, and, viewed across the cycle, would be unlikely to stoke fresh inflationary pressures,” he said.
“With the inflation outlook broadly anchored and supply-side distortions clearly identifiable, the case for a small, confidence-boosting reduction in the repo rate is strong.”
The MPC will announce its decision on Thursday, 20 November, at 15h00.
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